Ameris Bancorp - Quarter Report: 2019 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



	ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019



	¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-13901

AMERIS BANCORP

(Exact name of registrant as specified in its charter)



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

310 FIRST STREET, S.E., MOULTRIE, GA 31768

(Address of principal executive offices)

(229) 890-1111

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer	ý	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1 per share	ABCB	Nasdaq Global Select Market

There were 47,585,309 shares of Common Stock outstanding as of May 1, 2019.

AMERIS BANCORP

TABLE OF CONTENTS



		Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements.

	Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	1

	Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2019 and 2018	2

	Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2019 and 2018	3

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018	4

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	44

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	67

Item 4.	Controls and Procedures.	67

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	68

Item 1A.	Risk Factors.	68

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	68

Item 3.	Defaults Upon Senior Securities.	68

Item 4.	Mine Safety Disclosures.	68

Item 5.	Other Information.	68

Item 6.	Exhibits.	70

Signatures		71

Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited)

(dollars in thousands, except per share data)



	March 31, 2019			December 31, 2018
Assets
Cash and due from banks	$	144,801		$	172,036
Federal funds sold and interest-bearing deposits in banks	712,199			507,491
Cash and cash equivalents	857,000			679,527

Time deposits in other banks	7,371			10,812
Investment securities available for sale, at fair value	1,234,435			1,192,423
Other investments	15,157			14,455
Loans held for sale, at fair value	112,070			111,298

Loans	5,756,358			5,660,457
Purchased loans	2,472,271			2,588,832
Purchased loan pools	253,710			262,625
Loans, net of unearned income	8,482,339			8,511,914
Allowance for loan losses	(28,659		)	(28,819		)
Loans, net	8,453,680			8,483,095

Other real estate owned, net	6,014			7,218
Purchased other real estate owned, net	10,857			9,535
Total other real estate owned, net	16,871			16,753

Premises and equipment, net	141,698			145,410
Goodwill	501,308			503,434
Other intangible assets, net	55,557			58,689
Cash value of bank owned life insurance	104,597			104,096
Deferred income taxes, net	33,295			35,126
Other assets	123,236			88,397
Total assets	$	11,656,275		$	11,443,515

Liabilities
Deposits:
Noninterest-bearing	$	2,753,173		$	2,520,016
Interest-bearing	7,047,702			7,129,297
Total deposits	9,800,875			9,649,313
Securities sold under agreements to repurchase	4,259			20,384
Other borrowings	151,454			151,774
Subordinated deferrable interest debentures	89,529			89,187
FDIC loss-share payable, net	18,834			19,487
Other liabilities	95,740			57,023
Total liabilities	10,160,691			9,987,168

Commitments and Contingencies (Note 14)

Shareholders’ Equity
Preferred stock, stated value $1,000 (5,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2019 and December 31, 2018)	—			—
Common stock, par value $1 (100,000,000 shares authorized; 49,126,427 and 49,014,925 shares issued at March 31, 2019 and December 31, 2018, respectively)	49,126			49,015
Capital surplus	1,053,190			1,051,584
Retained earnings	412,005			377,135
Accumulated other comprehensive loss, net of tax	(1,178		)	(4,826		)
Treasury stock, at cost (1,541,118 shares and 1,514,984 shares at March 31, 2019 and December 31, 2018, respectively)	(17,559		)	(16,561		)
Total shareholders’ equity	1,495,584			1,456,347
Total liabilities and shareholders’ equity	$	11,656,275		$	11,443,515

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income (unaudited)

(dollars in thousands, except per share data)



	Three Months Ended March 31,
	2019			2018
Interest income
Interest and fees on loans	$	112,401		$	73,267
Interest on taxable securities	9,043			5,207
Interest on nontaxable securities	156			322
Interest on deposits in other banks and federal funds sold	3,329			716
Total interest income	124,929			79,512

Interest expense
Interest on deposits	21,684			6,772
Interest on other borrowings	3,850			3,939
Total interest expense	25,534			10,711

Net interest income	99,395			68,801
Provision for loan losses	3,408			1,801
Net interest income after provision for loan losses	95,987			67,000

Noninterest income
Service charges on deposit accounts	11,646			10,228
Mortgage banking activity	13,828			11,900
Other service charges, commissions and fees	768			719
Gain on securities	66			37
Other noninterest income	4,463			3,580
Total noninterest income	30,771			26,464

Noninterest expense
Salaries and employee benefits	38,370			32,089
Occupancy and equipment expense	8,204			6,198
Data processing and communications costs	8,391			7,135
Credit resolution-related expenses	911			549
Advertising and marketing expense	1,741			1,229
Amortization of intangible assets	3,132			934
Merger and conversion charges	2,057			835
Other noninterest expenses	12,619			10,129
Total noninterest expense	75,425			59,098

Income before income tax expense	51,333			34,366
Income tax expense	11,428			7,706
Net income	39,905			26,660

Other comprehensive income (loss)
Net unrealized holding gains (losses) arising during period on investment securities available for sale, net of tax expense (benefit) of $1,028 and ($2,500)	3,867			(9,403		)
Reclassification adjustment for gains on investment securities included in earnings, net of tax of ($12) and ($8)	(46		)	(29		)
Unrealized gains (losses) on cash flow hedges arising during period, net of tax expense (benefit) of ($46) and $75	(173		)	281
Other comprehensive income (loss)	3,648			(9,151		)
Total comprehensive income	$	43,553		$	17,509

Basic earnings per common share	$	0.84		$	0.70
Diluted earnings per common share	$	0.84		$	0.70
Dividends declared per common share	$	0.10		$	0.10
Weighted average common shares outstanding (in thousands)
Basic	47,366			37,967
Diluted	47,456			38,250

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity (unaudited)

(dollars in thousands)



	Three Months Ended March 31, 2019

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



	Three Months Ended March 31, 2018

	Common Stock									Accumulated Other Comprehensive Loss, Net of Tax			Treasury Stock
	Shares	Amount		Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Loss, Net of Tax			Shares	Amount			Total Shareholders' Equity
Balance at beginning of period	38,734,873	$	38,735	$	508,404		$	273,119		$	(1,280	)	1,474,861	$	(14,499	)	$	804,479
Issuance of common stock for acquisition	944,586	944		49,067			—			—			—	—			50,011
Issuance of restricted shares	77,755	78		(78		)	—			—			—	—			—
Proceeds from exercise of stock options	62,704	63		750			—			—			—	—			813
Share-based compensation	—	—		897			—			—			—	—			897
Purchase of treasury shares	—	—		—			—			—			17,976	(960		)	(960		)
Net income	—	—		—			26,660			—			—	—			26,660
Dividends on common shares	—	—		—			(3,833		)	—			—	—			(3,833		)
Reclassification of stranded income tax effects from accumulated other comprehensive income	—	—		—			392			(392		)	—	—			—
Cumulative effect of change in accounting for derivatives	—	—		—			28			—			—	—			28
Other comprehensive income (loss) during the period	—	—		—			—			(9,151		)	—	—			(9,151		)
Balance at end of period	39,819,918	$	39,820	$	559,040		$	296,366		$	(10,823	)	1,492,837	$	(15,459	)	$	868,944

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

(dollars in thousands)



	Three Months Ended March 31,
	2019			2018
Operating Activities
Net income	$	39,905		$	26,660
Adjustments reconciling net income to net cash provided by (used in) operating activities:
Depreciation	2,623			2,274
Net losses on sale or disposal of premises and equipment including write-downs	348			583
Net write-downs on other assets	571			—
Provision for loan losses	3,408			1,801
Net losses on sale of other real estate owned including write-downs	9			33
Share-based compensation expense	1,152			1,441
Amortization of intangible assets	3,132			934
Amortization of operating lease right-of-use assets	1,547			—
Provision for deferred taxes	2,963			2,432
Net amortization of investment securities available for sale	819			1,595
Net gain on securities	(66		)	(37		)
Accretion of discount on purchased loans	(2,980		)	(1,571		)
Amortization of premium on purchased loan pools	348			511
Accretion on other borrowings	18			33
Accretion on subordinated deferrable interest debentures	342			331
Originations of mortgage loans held for sale	(296,197		)	(358,038		)
Payments received on mortgage loans held for sale	194			367
Proceeds from sales of mortgage loans held for sale	305,473			377,748
Net gains on sale of mortgage loans held for sale	(11,484		)	(6,759		)
Originations of SBA loans	(9,515		)	(7,168		)
Proceeds from sales of SBA loans	11,870			10,497
Net gains on sale of SBA loans	(1,113		)	(918		)
Increase in cash surrender value of bank owned life insurance	(501		)	(366		)
Changes in FDIC loss-share payable, net of cash payments	1,141			785
Change attributable to other operating activities	5,670			(4,671		)
Net cash provided by (used in) operating activities	59,677			48,497

Investing Activities, net of effects of business combinations
Proceeds from maturities of time deposits in other banks	3,441			—
Purchases of securities available for sale	(146,874		)	(121,865		)
Proceeds from prepayments and maturities of securities available for sale	43,942			33,970
Proceeds from sales of securities available for sale	64,995			36,685
Net increase in other investments	(694		)	(13,809		)
Net increase in loans, excluding purchased loans	(101,360		)	(134,063		)
Payments received on purchased loans	116,834			43,971
Payments received on purchased loan pools	8,567			16,158
Purchases of premises and equipment	(1,550		)	(1,133		)
Proceeds from sales of premises and equipment	275			427
Proceeds from sales of other real estate owned	2,610			3,106
Payments paid to FDIC under loss-share agreements	(1,794		)	(333		)
Net cash and cash equivalents paid in acquisitions	—			(21,421		)
Net cash used in investing activities	(11,608		)	(158,307		)

				(Continued)

AMERIS BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

(dollars in thousands)



	Three Months Ended March 31,
	2019			2018
Financing Activities, net of effects of business combinations
Net increase (decrease) in deposits	$	151,562		$	(179,680	)
Net decrease in securities sold under agreements to repurchase	(16,125		)	(7,368		)
Proceeds from other borrowings	—			455,000
Repayment of other borrowings	(338		)	(150,052		)
Proceeds from exercise of stock options	54			813
Dividends paid - common stock	(4,751		)	(3,726		)
Purchase of treasury shares	(998		)	(960		)
Net cash provided by financing activities	129,404			114,027

Net increase in cash and cash equivalents	177,473			4,217
Cash and cash equivalents at beginning of period	679,527			330,658
Cash and cash equivalents at end of period	$	857,000		$	334,875

Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest	$	25,741		$	11,602
Income taxes	49			2
Loans (excluding purchased loans) transferred to other real estate owned	264			1,176
Purchased loans transferred to other real estate owned	2,523			457
Loans transferred from loans held for sale to loans held for investment	—			73,374
Loans transferred from loans held for investment to loans held for sale	—			2,796
Loans provided for the sales of other real estate owned	75			—
Initial recognition of operating lease right-of-use assets	27,286			—
Initial recognition of operating lease liabilities	29,651			—
Assets acquired in business acquisitions	1,335			82,981
Liabilities assumed in business acquisitions	(792		)	5,705
Issuance of common stock in acquisitions	—			50,011
Change in unrealized gain (loss) on securities available for sale, net of tax	3,821			(9,432		)
Change in unrealized gain (loss) on cash flow hedge, net of tax	(173		)	281

				(Concluded)

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

March 31, 2019

NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Nature of Business

Ameris Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered in Moultrie, Georgia. Ameris conducts substantially all of its operations through its wholly owned banking subsidiary, Ameris Bank (the “Bank”). At March 31, 2019, the Bank operated 114 branches in select markets in Georgia, Alabama, Florida and South Carolina. Our business model capitalizes on the efficiencies of a large financial services company, while still providing the community with the personalized banking service expected by our customers. We manage our Bank through a balance of decentralized management responsibilities and efficient centralized operating systems, products and loan underwriting standards. The Company’s Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within our established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of his or her unique market.

Basis of Presentation

The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited but reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto and the report of our registered independent public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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 reserve requirement as of March 31, 2019 and December 31, 2018 was $52.7 million and $61.2 million, respectively, and was met by cash on hand which is reported on the Company's consolidated balance sheets in cash and due from banks.

Intangible Assets

Intangible assets include core deposit premiums acquired in connection with business combinations and are based on the established value of acquired customer deposits. The core deposit premium is initially recognized based on a valuation performed as of the consummation date and is amortized over an estimated useful life of seven to ten years. Intangible assets also include insurance agent relationships, trade name and non-compete agreement intangible assets acquired in the acquisition of US Premium Finance Holding Company. These agent relationship, trade name and non-compete agreement intangible assets were initially recognized based on a valuation performed as of the consummation date and are amortized over estimated useful lives ranging from three to eight years.

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 2019

ASU 2016-02 – Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 amends the existing standards for lease accounting effectively requiring that most leases be carried on the balance sheets of the related lessees by requiring them to recognize a right-of-use asset and a corresponding lease liability. ASU 2016-02 includes qualitative and quantitative disclosure requirements intended to provide

greater insight into the nature of an entity’s leasing activities. The standard may be adopted using a modified retrospective transition method with a cumulative effect adjustment to equity as of the beginning of the period in which it is adopted. Alternatively, the standard may be adopted using an optional transition method where initial application of the provisions of ASU 2016-02 are applied as the date of adoption, resulting in no adjustment to amounts reported in prior periods. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. The Company adopted ASU 2016-02 during the first quarter of 2019 and elected the optional transition method. The Company also elected the package of practical expedients provided in the guidance which permits the Company to not reassess under the new standard the prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the hindsight practical expedient to determine lease term and in assessing impairment of the Company's right-of-use asset. The adoption of ASU 2016-02 resulted in the recognition of a right-of-use asset of $27.3 million, a lease liability of $29.7 million and a cumulative effect decrease to retained earnings of $276,000. The right-of-use asset and lease liability are recorded in the consolidated balance sheets in other assets and other liabilities, respectively.

Accounting Standards Pending Adoption

ASU 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). ASU 2018-15 requires that application development stage implementation costs incurred in a Cloud Computing Arrangement ("CCA") that are service contracts be capitalized and amortized over the term of the hosting arrangement, including renewal option terms if the customer entity is reasonably certain to exercise the option. Costs incurred in the preliminary project and post-implementation stages are expensed as incurred. Training costs and certain data conversion costs also cannot be capitalized for a CCA that is a service contract. Amortization expense of capitalized implementation costs will be presented in the same income statement caption as the CCA fees. Similarly, capitalized implementation costs will be presented in the same balance sheet caption as any prepaid CCA fees, and cash flows from capitalized implementation costs will be classified in the statement of cash flows in the same manner as payments made for the CCA fees. The requirements of ASU 2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the adoption date. ASU 2018-15 is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated balance sheet, consolidated statement of income and comprehensive income, consolidated statement of shareholders’ equity and consolidated statement of cash flows, but it is not expected to have a material impact.

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

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

permitted on testing dates after January 1, 2017. The Company is currently evaluating the impact this ASU will have on the Company’s results of operations, financial position and disclosures, but it is not expected to have a material impact.

ASU 2016-13 – Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 significantly changes how entities will measure credit losses for financial assets measured at amortized cost and certain other instruments that are not measured at fair value through net income. The standard will replace the current incurred loss approach with an expected loss model, referred to as the current expected credit loss (“CECL”) model. The new standard will apply to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. ASU 2016-13 simplifies the accounting for purchased credit-impaired debt securities and loans and expands the disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. The Company will adopt the new guidance on January 1, 2020. Upon adoption, ASU 2016-13 provides for a modified retrospective transition by means of a cumulative effect adjustment to equity as of the beginning of the period in which the guidance is effective. While the Company is currently evaluating the impact this ASU will have on the results of operations, financial position and disclosures, the Company expects to recognize a one-time cumulative effect adjustment to equity and the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective. The impact of implementation will be influenced by the composition, characteristics and quality of our portfolios, as well as the economic conditions and forecasts at the adoption date.

The Company has established a steering committee which includes the appropriate members of management to evaluate the impact this ASU will have on Company’s financial position, results of operations and financial statement disclosures and determine the most appropriate method of implementing the amendments in this ASU as well as any resources needed to implement the amendments. An evaluation of accounting policies is in progress and it has been determined that current policy elections will need to be modified. This committee has contracted with the software vendor of choice for implementation, established an implementation time-line, conducts regular meetings to monitor the project's status, and continues to stay current on implementation issues and concerns. During the third quarter of 2018, work began with the software vendor to source and test required data feeds. During the fourth quarter of 2018, work with the software vendor continued with sourcing of required data from the Company's loan systems and testing of data feeds. Additionally, the committee has engaged consulting services from a leading international accounting professional services firm to assist management with the technical accounting, internal control, and project management aspects of the Company's CECL implementation. During the first quarter of 2019, four CECL work streams have been established: accounting and reporting, credit risk modeling, systems and data, and processes and controls. Significant attention has been devoted to each of these areas detailing current processes, determining areas requiring attention, and developing timelines to address those areas. Identification of financial assets in scope for ASU 2016-13 is substantially complete.

NOTE 2 – PENDING ACQUISITION

On December 17, 2018, the Company and Fidelity Southern Corporation, a Georgia corporation ("Fidelity"), entered into an Agreement and Plan of Merger (the "Fidelity Merger Agreement") pursuant to which Fidelity will merge into Ameris, with Ameris as the surviving entity and immediately thereafter, Fidelity Bank, a Georgia bank wholly owned by Fidelity, will be merged into Ameris Bank, with Ameris Bank as the surviving entity. At March 31, 2019, Fidelity Bank operated 70 full-service banking locations, 51 of which were located in Georgia and 19 of which were located Florida, providing financial products and services to customers primarily in the metropolitan markets of Atlanta, Georgia, and Jacksonville, Orlando, Tallahassee, and Sarasota-Bradenton, Florida. Under the terms of the Fidelity Merger Agreement, Fidelity's shareholders will receive 0.80 shares of Ameris common stock for each share of Fidelity common stock they hold. Each outstanding Fidelity restricted stock award will fully vest and be converted into the right to receive 0.80 shares of Ameris common stock for each share of Fidelity common stock underlying such award. Each outstanding Fidelity stock option will fully vest and be converted into an option to purchase shares of Ameris common stock, with the number of underlying shares and per share exercise price of such option adjusted to reflect the exchange ratio of 0.80. The estimated purchase price is $750.7 million in the aggregate based upon the $34.02 per share closing price of the Company's common stock as of December 14, 2018, the last trading date before announcement. The merger is subject to customary closing conditions, including the receipt of regulatory approvals. The transaction is expected to close during the second quarter of 2019. As of December 31, 2018, Fidelity reported assets of $4.73 billion, gross loans of $3.92 billion and deposits of $3.98 billion. The purchase price will be allocated among the net assets of Fidelity acquired as appropriate, with the remaining balance being reported as goodwill.

NOTE 3 – BUSINESS COMBINATIONS

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

Hamilton State Bancshares, Inc.

On June 29, 2018, the Company completed its acquisition of Hamilton State Bancshares, Inc. ("Hamilton"), a bank holding company headquartered in Hoschton, Georgia. Upon consummation of the acquisition, Hamilton was merged with and into the Company, with Ameris as the surviving entity in the merger. At that time, Hamilton's wholly owned banking subsidiary, Hamilton State Bank, was also merged with and into the Bank. The acquisition expanded the Company's existing market presence, as Hamilton State Bank had a total of 28 full-service branches located in Atlanta, Georgia and the surrounding area, as well as in Gainesville, Georgia. Under the terms of the merger agreement, Hamilton's shareholders received 0.16 shares of Ameris common stock and $0.93 in cash for each share of Hamilton voting common stock or nonvoting common stock they previously held. As a result, the Company issued 6,548,385 common shares at a fair value of $349.4 million and paid $47.8 million in cash to the former shareholders of Hamilton as merger consideration.

The following table presents the assets acquired and liabilities assumed of Hamilton as of June 29, 2018, and their fair value estimates. The fair value estimates are subject to refinement for up to one year after the closing date of the acquisition for new information obtained about facts and circumstances that existed at the acquisition date. The Company continues its evaluation of the facts and circumstances available as of June 29, 2018, to assign fair values to assets acquired and liabilities assumed which could result in further adjustments to the fair values presented below. Because final external valuations were not complete as of March 31, 2019, management continues to evaluate fair value adjustments related to loans, premises, intangibles, interest-bearing deposits, other borrowings, subordinated deferrable interest debentures, other liabilities and deferred tax assets.



(dollars in thousands)	As Recorded by Hamilton			Initial Fair Value Adjustments				Subsequent Adjustments				As Recorded by Ameris
Assets
Cash and due from banks	$	14,405		$	—			$	(478	)	(j)	$	13,927
Federal funds sold and interest-bearing deposits in banks	102,156			—				—				102,156
Time deposits in other banks	11,558			—				—				11,558
Investment securities	288,206			(2,376		)	(a)	—				285,830
Other investments	2,094			—				—				2,094
Loans	1,314,264			(15,528		)	(b)	(696		)	(k)	1,298,040
Less allowance for loan losses	(11,183		)	11,183			(c)	—				—
Loans, net	1,303,081			(4,345		)		(696		)		1,298,040
Other real estate owned	847			—				—				847
Premises and equipment	27,483			—				(723		)	(l)	26,760
Other intangible assets, net	18,755			(2,755		)	(d)	7,610			(m)	23,610
Cash value of bank owned life insurance	4,454			—				—				4,454
Deferred income taxes, net	12,445			(6,308		)	(e)	343			(n)	6,480
Other assets	13,053			—				(17		)	(o)	13,036
Total assets	$	1,798,537		$	(15,784	)		$	6,039			$	1,788,792
Liabilities
Deposits:
Noninterest-bearing	$	381,039		$	—			$	—			$	381,039
Interest-bearing	1,201,324			(1,896		)	(f)	4,783			(p)	1,204,211
Total deposits	1,582,363			(1,896		)		4,783				1,585,250
Other borrowings	10,687			(66		)	(g)	286			(q)	10,907
Subordinated deferrable interest debentures	3,093			(658		)	(h)	(143		)	(r)	2,292
Other liabilities	10,460			2,391			(i)	—				12,851
Total liabilities	1,606,603			(229		)		4,926				1,611,300
Net identifiable assets acquired over (under) liabilities assumed	191,934			(15,555		)		1,113				177,492
Goodwill	—			220,713				(1,070		)		219,643
Net assets acquired over liabilities assumed	$	191,934		$	205,158			$	43			$	397,135
Consideration:
Ameris Bancorp common shares issued	6,548,385
Price per share of the Company's common stock	$	53.35
Company common stock issued	$	349,356
Cash exchanged for shares	$	47,779
Fair value of total consideration transferred	$	397,135

____________________________________________________________

Explanation of fair value adjustments


(a)	Adjustment reflects the fair value adjustments of the portfolio of investment securities as of the acquisition date.


(b)	Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired loan portfolio, net of the reversal of Hamilton's unamortized accounting adjustments from their prior acquisitions, loan premiums, loan discounts, deferred loan origination costs and deferred loan origination fees.


(c)	Adjustment reflects the elimination of Hamilton's allowance for loan losses.


(d)	Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts, net of reversal of Hamilton's remaining intangible assets from its past acquisitions.


(e)	Adjustment reflects the deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.


(f)	Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired deposits.


(g)	Adjustment reflects the reversal of Hamilton's unamortized accounting adjustments for other borrowings from its past acquisitions.


(h)	Adjustment reflects the fair value adjustment to the subordinated deferrable interest debenture at the acquisition date.


(i)	Adjustment reflects the fair value adjustment to the FDIC loss-share clawback liability included in other liabilities.


(j)	Subsequent to acquisition, cash and due from banks were adjusted for Hamilton reconciling items.


(k)	Adjustment reflects additional recording of fair value adjustments to the acquired loan portfolio.


(l)	Adjustment reflects the recording of fair value adjustment to premises and equipment.


(m)	Adjustment reflects additional recording of fair value adjustments to the core deposit intangible on the acquired core deposit accounts.


(n)	Adjustment reflects additional recording of deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.


(o)	Adjustment reflects the fair value adjustment to other assets.


(p)	Adjustment reflects additional recording of fair value adjustments on the acquired deposits.


(q)	Adjustment reflects the fair value adjustment to other borrowings.


(r)	Adjustment reflects additional recording of fair value adjustments to the subordinated deferrable interest debenture.

Goodwill of $219.6 million, which is the excess of the purchase price over the fair value of net assets acquired, was recorded in the Hamilton acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

In the acquisition, the Company purchased $1.30 billion of loans at fair value, net of $16.2 million, or 1.23%, estimated discount to the outstanding principal balance. Of the total loans acquired, management identified $18.3 million that were considered to be credit impaired and are accounted for under ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of the acquisition date for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.



(dollars in thousands)
Contractually required principal and interest	$	21,223
Non-accretable difference	(2,090		)
Cash flows expected to be collected	19,133
Accretable yield	(794		)
Total purchased credit-impaired loans acquired	$	18,339

The following table presents the acquired loan data for the Hamilton acquisition.



(dollars in thousands)	Fair Value of Acquired Loans at Acquisition Date		Gross Contractual Amounts Receivable at Acquisition Date		Estimate at Acquisition Date of Contractual Cash Flows Not Expected to be Collected
Acquired receivables subject to ASC 310-30	$	18,339	$	21,223	$	2,090
Acquired receivables not subject to ASC 310-30	$	1,279,701	$	1,441,534	$	—

Atlantic Coast Financial Corporation

On May 25, 2018, the Company completed its acquisition of Atlantic Coast Financial Corporation ("Atlantic"), a bank holding company headquartered in Jacksonville, Florida. Upon consummation of the acquisition, Atlantic was merged with and into the Company, with Ameris as the surviving entity in the merger. At that time, Atlantic's wholly owned banking subsidiary, Atlantic Coast Bank, was also merged with and into the Bank. The acquisition expanded the Company's existing market presence, as Atlantic Coast Bank had a total of 12 full-service branches located in Jacksonville and Jacksonville Beach, Duval County, Florida, Waycross, Georgia and Douglas, Georgia. Under the terms of the merger agreement, Atlantic's shareholders received 0.17 shares of Ameris common stock and $1.39 in cash for each share of Atlantic common stock they previously held. As a result, the Company issued 2,631,520 common shares at a fair value of $147.8 million and paid $21.5 million in cash to the former shareholders of Atlantic as merger consideration.

The following table presents the assets acquired and liabilities assumed of Atlantic as of May 25, 2018, and their fair value estimates. The fair value estimates are subject to refinement for up to one year after the closing date of the acquisition for new information obtained about facts and circumstances that existed at the acquisition date. The Company continues its evaluation of the facts and circumstances available as of May 25, 2018, to assign fair values to assets acquired and liabilities assumed which could result in further adjustments to the fair values presented below. Because final external valuations were not complete as of March 31, 2019, management continues to evaluate fair value adjustments related to loans, intangibles, interest-bearing deposits, other liabilities and deferred tax assets.



(dollars in thousands)	As Recorded by Atlantic			Initial Fair Value Adjustments				Subsequent Adjustments				As Recorded by Ameris
Assets
Cash and due from banks	$	3,990		$	—			$	—			$	3,990
Federal funds sold and interest-bearing deposits in banks	22,149			—				—				22,149
Investment securities	35,186			(60		)	(a)	—				35,126
Other investments	9,576			—				—				9,576
Loans held for sale	358			—				—				358
Loans	777,605			(19,423		)	(b)	(2,478		)	(k)	755,704
Less allowance for loan losses	(8,573		)	8,573			(c)	—				—
Loans, net	769,032			(10,850		)		(2,478		)		755,704
Other real estate owned	1,837			(796		)	(d)	—				1,041
Premises and equipment	12,591			(1,695		)	(e)	—				10,896
Other intangible assets, net	—			5,937			(f)	1,551			(l)	7,488
Cash value of bank owned life insurance	18,182			—				—				18,182
Deferred income taxes, net	5,782			709			(g)	1,595			(m)	8,086
Other assets	3,604			(634		)	(h)	82			(n)	3,052
Total assets	$	882,287		$	(7,389	)		$	750			$	875,648
Liabilities
Deposits:
Noninterest-bearing	$	69,761		$	—			$	—			$	69,761
Interest-bearing	514,935			(554		)	(i)	1,025			(o)	515,406
Total deposits	584,696			(554		)		1,025				585,167
Other borrowings	204,475			—				—				204,475
Other liabilities	8,367			(13		)	(j)	—				8,354
Total liabilities	797,538			(567		)		1,025				797,996
Net identifiable assets acquired over (under) liabilities assumed	84,749			(6,822		)		(275		)		77,652
Goodwill	—			91,360				275				91,635
Net assets acquired over liabilities assumed	$	84,749		$	84,538			$	—			$	169,287
Consideration:
Ameris Bancorp common shares issued	2,631,520
Price per share of the Company's common stock	$	56.15
Company common stock issued	$	147,760
Cash exchanged for shares	$	21,527
Fair value of total consideration transferred	$	169,287

____________________________________________________________

Explanation of fair value adjustments


(a)	Adjustment reflects the fair value adjustments of the portfolio of investment securities as of the acquisition date.


(b)	Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired loan portfolio, net of the reversal of Atlantic's unamortized accounting adjustments from loan premiums, loan discounts, deferred loan origination costs and deferred loan origination fees.


(c)	Adjustment reflects the elimination of Atlantic's allowance for loan losses.


(d)	Adjustment reflects the fair value adjustment based on the Company's evaluation of the acquired OREO portfolio.


(e)	Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired premises and equipment.


(f)	Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts.


(g)	Adjustment reflects the deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.


(h)	Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired other assets.


(i)	Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired deposits.


(j)	Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired other liabilities.


(k)	Adjustment reflects additional recording of fair value adjustments of the acquired loan portfolio.


(l)	Adjustment reflects additional recording of fair value adjustments to the core deposit intangible on the acquired core deposit accounts.


(m)	Adjustment reflects additional recording of deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.


(n)	Adjustment reflects additional fair value adjustments on acquired other assets.


(o)	Adjustment reflects additional fair value adjustments on the acquired deposits.

Goodwill of $91.6 million, which is the excess of the purchase price over the fair value of net assets acquired, was recorded in the Atlantic acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

In the acquisition, the Company purchased $755.7 million of loans at fair value, net of $21.9 million, or 2.82%, estimated discount to the outstanding principal balance. Of the total loans acquired, management identified $10.8 million that were considered to be credit impaired and are accounted for under ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and fair value of the loans as of the acquisition date for purchased credit impaired loans. Contractually required principal and interest payments have been adjusted for estimated prepayments.



(dollars in thousands)
Contractually required principal and interest	$	16,077
Non-accretable difference	(4,115		)
Cash flows expected to be collected	11,962
Accretable yield	(1,199		)
Total purchased credit-impaired loans acquired	$	10,763

The following table presents the acquired loan data for the Atlantic acquisition.



(dollars in thousands)	Fair Value of Acquired Loans at Acquisition Date		Gross Contractual Amounts Receivable at Acquisition Date		Estimate at Acquisition Date of Contractual Cash Flows Not Expected to be Collected
Acquired receivables subject to ASC 310-30	$	10,763	$	16,077	$	4,115
Acquired receivables not subject to ASC 310-30	$	744,941	$	1,041,768	$	—

US Premium Finance Holding Company

On January 31, 2018, the Company closed on the purchase of the final 70% of the outstanding shares of common stock of US Premium Finance Holding Company, a Florida corporation ("USPF"), completing its acquisition of USPF and making USPF a wholly owned subsidiary of the Company. Through a series of three acquisition transactions that closed on January 18, 2017, January 3, 2018 and January 31, 2018, the Company issued a total of 1,073,158 shares of its common stock at a fair value of $55.9 million and paid $21.4 million in cash to the former shareholders of USPF. Pursuant to the terms of the Stock Purchase Agreement dated January 25, 2018 under which the Company purchased the final 70% of the outstanding shares of common stock of USPF, the selling shareholders of USPF may receive additional cash payments aggregating up to $5.8 million based on the achievement by the Company's premium finance division of certain income targets, between January 1, 2018 and June 30, 2019. As of the January 31, 2018 acquisition date, the present value of the contingent earn-out consideration expected to be paid was $5.7 million. Including the fair value of the Company's common stock issued, cash paid and the present value of the contingent earn-out consideration expected to be paid, the aggregate purchase price of USPF amounted to $83.0 million.

Prior to the January 31, 2018 completion of the acquisition, the Company's 30% investment in USPF was carried at its $23.9 million original cost basis. Once the acquisition was completed, the $83.0 million aggregate purchase price equaled the fair value of USPF which was determined utilizing the incremental projected earnings. Accordingly, no gain or loss was recorded by the Company in the consolidated statement of income and comprehensive income as a result of remeasuring to fair value the prior minority equity investment in USPF held by the Company immediately before the business combination was completed.

The following table presents the assets acquired and liabilities assumed of USPF as of January 31, 2018 at their initial and subsequent fair value estimates, as recorded by the Company. The fair value estimates were subject to refinement for up to one year after the closing date of the acquisition for new information obtained about facts and circumstances that existed at the acquisition date. The assets acquired include only identifiable intangible assets related to insurance agent relationships that lead to referral of insurance premium finance loans to USPF, the "US Premium Finance" trade name and a non-compete agreement with a former USPF shareholder.



(dollars in thousands)	As Recorded by USPF		Initial Fair Value Adjustments			Subsequent Adjustments				As Recorded by Ameris
Assets
Intangible asset - insurance agent relationships	$	—	$	20,000	(a)	$	2,351		(e)	$	22,351
Intangible asset - US Premium Finance trade name	—		1,136		(b)	(42		)	(f)	1,094
Intangible asset - non-compete agreement	—		178		(c)	(16		)	(g)	162
Total assets	$	—	$	21,314		$	2,293			$	23,607
Liabilities
Deferred tax liability	$	—	$	5,492	(d)	$	(368	)	(h)	$	5,124
Total liabilities	—		5,492			(368		)		5,124
Net identifiable assets acquired over liabilities assumed	—		15,822			2,661				18,483
Goodwill	—		67,159			(2,661		)		64,498
Net assets acquired over liabilities assumed	$	—	$	82,981		$	—			$	82,981
Consideration:
Ameris Bancorp common shares issued	1,073,158
Price per share of the Company's common stock (weighted average)	$	52.047
Company common stock issued	$	55,855
Cash exchanged for shares	$	21,421
Present value of contingent earn-out consideration expected to be paid	$	5,705
Fair value of total consideration transferred	$	82,981

____________________________________________________________

Explanation of fair value adjustments


(a)	Adjustment reflects the recording of the fair value of the insurance agent relationships intangible.


(b)	Adjustment reflect the recording of the fair value of the trade name intangible.


(c)	Adjustment reflects the recording of the fair value of the non-compete agreement intangible.


(d)	Adjustment reflects the deferred taxes on the differences in the carrying values of acquired intangible assets for financial reporting purposes and their basis for federal income tax purposes.


(e)	Adjustment reflects additional fair value adjustment for the insurance agent relationships intangible.


(f)	Adjustment reflects additional fair value adjustment for the trade name intangible.


(g)	Adjustment reflects additional fair value adjustment for the non-compete agreement intangible.


(h)	Adjustment reflects additional recording of deferred taxes on the differences in the carrying values of acquired intangible assets for financial reporting purposes and their basis for federal income tax purposes.

Goodwill of $64.5 million, which is the excess of the purchase price over the fair value of net assets acquired, was recorded in the USPF acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

During the second quarter of 2018, the Company recorded $2.0 million in other noninterest income in the consolidated statements of income and comprehensive income to reflect a decrease in the estimated contingent consideration liability. During the fourth quarter of 2018, the Company recorded $2.5 million in other noninterest income in the consolidated statements of income and comprehensive income to reflect a further decrease in the estimated contingent consideration liability. These decreases in the

estimated contingent consideration liability were based on projected results of the premium finance division for the entire measurement period from January 1, 2018 through June 30, 2019. No additional adjustment to the estimated contingent consideration liability was considered necessary for the first quarter of 2019.

Pro Forma Financial Information

The results of operations of USPF subsequent to its acquisition date are included in the Company’s consolidated statements of income and comprehensive income. The following unaudited pro forma information reflects the Company’s estimated consolidated results of operations as if the acquisition had occurred on January 1, 2017, unadjusted for potential cost savings.



	Three Months Ended March 31,
(dollars in thousands, except per share data; shares in thousands)		2018
Net interest income and noninterest income		$	95,265
Net income		$	26,876
Net income available to common shareholders		$	26,876
Income per common share available to common shareholders – basic		$	0.70
Income per common share available to common shareholders – diluted		$	0.70
Average number of shares outstanding, basic		38,246
Average number of shares outstanding, diluted		38,529

NOTE 4 – INVESTMENT SECURITIES

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



(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
March 31, 2019
State, county and municipal securities	$	106,468	$	1,312	$	(40	)	$	107,740
Corporate debt securities	56,901		412		(161		)	57,152
Mortgage-backed securities	1,072,783		5,867		(9,107		)	1,069,543
Total debt securities	$	1,236,152	$	7,591	$	(9,308	)	$	1,234,435

December 31, 2018
State, county and municipal securities	$	149,670	$	1,367	$	(304	)	$	150,733
Corporate debt securities	67,123		718		(527		)	67,314
Mortgage-backed securities	982,183		4,172		(11,979		)	974,376
Total debt securities	$	1,198,976	$	6,257	$	(12,810	)	$	1,192,423

The amortized cost and estimated fair value of available for sale securities at March 31, 2019 by contractual maturity are summarized in the table below. Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers can prepay obligations without prepayment penalties. Therefore, these securities are shown separately.



(dollars in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	14,170	$	14,178
Due from one year to five years	60,032		60,448
Due from five to ten years	67,648		68,541
Due after ten years	21,519		21,725
Mortgage-backed securities	1,072,783		1,069,543
	$	1,236,152	$	1,234,435

Securities with a carrying value of approximately $477.8 million serve as collateral to secure public deposits, securities sold under agreements to repurchase and for other purposes required or permitted by law at March 31, 2019, compared with $510.0 million at December 31, 2018.

The following table details the gross unrealized losses and estimated fair value of securities aggregated by category and duration of continuous unrealized loss position at March 31, 2019 and December 31, 2018.



	Less Than 12 Months					12 Months or More					Total
(dollars in thousands)	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
March 31, 2019
State, county and municipal securities	$	5,641	$	(3	)	$	13,157	$	(37	)	$	18,798	$	(40	)
Corporate debt securities	9,168		(60		)	8,049		(101		)	17,217		(161		)
Mortgage-backed securities	78,426		(174		)	478,497		(8,933		)	556,923		(9,107		)
Total debt securities	$	93,235	$	(237	)	$	499,703	$	(9,071	)	$	592,938	$	(9,308	)

December 31, 2018
State, county and municipal securities	$	23,784	$	(52	)	$	33,873	$	(252	)	$	57,657	$	(304	)
Corporate debt securities	17,291		(111		)	17,952		(416		)	35,243		(527		)
Mortgage-backed securities	119,745		(580		)	435,749		(11,399		)	555,494		(11,979		)
Total debt securities	$	160,820	$	(743	)	$	487,574	$	(12,067	)	$	648,394	$	(12,810	)

As of March 31, 2019, the Company’s securities portfolio consisted of 488 securities, 246 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company’s mortgage-backed securities, as discussed below.

At March 31, 2019, the Company held 225 mortgage-backed securities that were in an unrealized loss position, all of which were issued by U.S. government-sponsored entities and agencies. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these mortgage-backed securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2019.

At March 31, 2019, the Company held 13 state, county and municipal securities and eight corporate debt securities that were in an unrealized loss position. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2019.

The Company’s investments in corporate debt include investments in regional and super-regional banks on which the Company prepares regular analysis through review of financial information and credit ratings. Investments in preferred securities are also concentrated in the preferred obligations of regional and super-regional banks through non-pooled investment structures. The Company did not have investments in “pooled” trust preferred securities at March 31, 2019 or December 31, 2018.

Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. While the majority of the unrealized losses on debt securities relate to changes in interest rates, corporate debt securities have also been affected by reduced levels of liquidity and higher risk premiums. Occasionally, management engages independent third parties to evaluate the Company’s position in certain corporate debt securities to aid management and the ALCO Committee in its determination regarding the status of impairment. The Company believes that each investment poses minimal credit risk and further, that the Company does not intend to sell these investment securities at an unrealized loss position at March 31, 2019, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at March 31, 2019, these investments are not considered impaired on an other-than-temporary basis.

At March 31, 2019 and December 31, 2018, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.

The following table is a summary of sales activities in the Company’s investment securities available for sale for the three months ended March 31, 2019 and 2018:



(dollars in thousands)	March 31, 2019			March 31, 2018
Gross gains on sales of securities	$	522		$	332
Gross losses on sales of securities	(464		)	(295		)
Net realized gains on sales of securities available for sale	$	58		$	37

Sales proceeds	$	64,995		$	36,685

Total gain on securities reported on the consolidated statements of income and comprehensive income is comprised of the following for the three months ended March 31, 2019 and 2018:



(dollars in thousands)	March 31, 2019		March 31, 2018
Net realized gains on sales of securities available for sale	$	58	$	37
Unrealized holding gains on equity securities	8		—
Total gain on securities	$	66	$	37

NOTE 5 – LOANS

The Bank engages in a full complement of lending activities, including real estate-related loans, agriculture-related loans, commercial and financial loans and consumer installment loans within select markets in Georgia, Alabama, Florida and South Carolina. The Bank purchased residential mortgage loan pools during 2015 and 2016 collateralized by properties located outside our Southeast markets, specifically in California, Washington and Illinois. During the third quarter of 2016, the Bank began purchasing from unrelated third parties consumer installment home improvement loans made to borrowers throughout the United States. As of March 31, 2019 and December 31, 2018, the net carrying value of these consumer installment home improvement loans was approximately $382.5 million and $399.9 million, respectively, and such loans are reported in the consumer installment loan category. During the fourth quarter of 2016, the Bank purchased a pool of commercial insurance premium finance loans made to borrowers throughout the United States and began to originate, administer and service these types of loans. As of March 31, 2019 and December 31, 2018, the net carrying value of commercial insurance premium loans was approximately $487.0 million and $413.5 million, respectively, and such loans are reported in the commercial, financial and agricultural loan category.

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

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

Real estate loans include construction and development loans, commercial and farmland loans and residential loans. Construction and development loans include loans for the development of residential neighborhoods, one-to-four family home residential construction loans to builders and consumers, and commercial real estate construction loans, primarily for owner-occupied properties. The Company limits its construction lending risk through adherence to established underwriting procedures. Commercial real estate loans include loans secured by owner-occupied commercial buildings for office, storage, retail and warehouse space as well as farmland. They also include non-owner occupied commercial buildings such as leased retail and office space. Commercial real estate loans may be larger in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent on successful operation or management of the properties. The Company’s residential loans represent permanent mortgage financing and are secured by residential properties located within the Bank's market areas, along with warehouse lines of credit secured by residential mortgages.

Consumer installment loans include home improvement loans, automobile loans, boat and recreational vehicle financing, and secured and unsecured personal loans. Consumer loans carry greater risks than other loans, as the collateral can consist of rapidly depreciating assets such as automobiles and equipment that may not provide an adequate source of repayment of the loan in the case of default.

Loans are stated at unpaid balances, net of unearned income and deferred loan fees. Balances within the major loans receivable categories are presented in the following table, excluding purchased loans:



(dollars in thousands)	March 31, 2019		December 31, 2018
Commercial, financial and agricultural	$	1,382,907	$	1,316,359
Real estate – construction and development	676,563		671,198
Real estate – commercial and farmland	1,894,937		1,814,529
Real estate – residential	1,365,482		1,403,000
Consumer installment	436,469		455,371
	$	5,756,358	$	5,660,457

Purchased loans are defined as loans that were acquired in bank acquisitions including those that are covered by a loss-sharing agreement with the Federal Deposit Insurance Corporation (the “FDIC”). Purchased loans totaling $2.47 billion and $2.59 billion at March 31, 2019 and December 31, 2018, respectively, are not included in the above schedule.

Purchased loans are shown below according to major loan type as of the end of the periods shown:



(dollars in thousands)	March 31, 2019		December 31, 2018
Commercial, financial and agricultural	$	327,972	$	372,686
Real estate – construction and development	239,413		227,900
Real estate – commercial and farmland	1,280,515		1,337,859
Real estate – residential	597,735		623,199
Consumer installment	26,636		27,188
	$	2,472,271	$	2,588,832

A rollforward of purchased loans for the three months ended March 31, 2019 and 2018 is shown below:



(dollars in thousands)	March 31, 2019			March 31, 2018
Balance, January 1	$	2,588,832		$	861,595
Charge-offs	(184		)	(151		)
Accretion	2,980			1,571
Transfers to purchased other real estate owned	(2,523		)	(457		)
Payments received, net of principal advances	(116,834		)	(43,971		)
Ending balance	$	2,472,271		$	818,587

The following is a summary of changes in the accretable discounts of purchased loans during the three months ended March 31, 2019 and 2018:



(dollars in thousands)	March 31, 2019			March 31, 2018
Balance, January 1	$	40,496		$	20,192
Accretion	(2,980		)	(1,571		)
Transfers between non-accretable and accretable discounts, net	(1,869		)	146
Ending balance	$	35,647		$	18,767

At March 31, 2019, purchased loan pools included principal balances of $400,000 risk-rated grade 7 (Substandard), while all other loans included in the purchased loan pools were performing current loans risk-rated grade 3 (Good Credit). At March 31, 2019,

purchased loan pools included principal balances of $400,000 on nonaccrual status and had no loans accounted for as troubled debt restructurings.

At December 31, 2018, all loans in purchased loan pools were performing current loans risk-rated grade 3 (Good Credit). At December 31, 2018, purchased loan pools had no loans on nonaccrual status and had no loans classified as troubled debt restructurings.

At March 31, 2019 and December 31, 2018, the Company had allocated $697,000 and $732,000, respectively, of allowance for loan losses for the purchased loan pools.

As part of the due diligence process prior to purchasing an individual mortgage pool, a complete re-underwrite of the individual loan files was conducted. The underwriting process included a review of all income, asset, credit and property related documentation that was used to originate the loan. Underwriters utilized the originating lender’s program guidelines, as well as general prudent mortgage lending standards, to assess each individual loan file. Additional research was conducted to assess the real estate market conditions and market expectations in the geographic areas where a collateral concentration existed. As part of this review, an automated valuation model was employed to provide current collateral valuations and to support individual loan-to-value ratios. Additionally, a sample of site inspections was completed to provide further assurance. The results of the due diligence review were evaluated by officers of the Company in order to determine overall conformance to the Bank’s credit and lending policies.

Nonaccrual and Past-Due Loans

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

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



(dollars in thousands)	March 31, 2019		December 31, 2018
Commercial, financial and agricultural	$	1,349	$	1,412
Real estate – construction and development	1,244		892
Real estate – commercial and farmland	3,496		4,654
Real estate – residential	11,118		10,465
Consumer installment	426		529
	$	17,633	$	17,952

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



(dollars in thousands)	March 31, 2019		December 31, 2018
Commercial, financial and agricultural	$	3,857	$	1,199
Real estate – construction and development	5,933		6,119
Real estate – commercial and farmland	5,061		5,534
Real estate – residential	8,402		10,769
Consumer installment	593		486
	$	23,846	$	24,107

The following table presents an analysis of past-due loans, excluding purchased past-due loans as of March 31, 2019 and December 31, 2018:



(dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
March 31, 2019
Commercial, financial and agricultural	$	5,270	$	2,784	$	4,222	$	12,276	$	1,370,631	$	1,382,907	$	3,416
Real estate – construction and development	957		531		692		2,180		674,383		676,563		—
Real estate – commercial and farmland	2,784		3,276		2,652		8,712		1,886,225		1,894,937		—
Real estate – residential	13,394		1,287		9,895		24,576		1,340,906		1,365,482		—
Consumer installment	1,752		929		541		3,222		433,247		436,469		260
Total	$	24,157	$	8,807	$	18,002	$	50,966	$	5,705,392	$	5,756,358	$	3,676

December 31, 2018
Commercial, financial and agricultural	$	6,479	$	5,295	$	4,763	$	16,537	$	1,299,822	$	1,316,359	$	3,808
Real estate – construction and development	1,218		481		725		2,424		668,774		671,198		—
Real estate – commercial and farmland	1,625		530		3,645		5,800		1,808,729		1,814,529		—
Real estate – residential	11,423		4,631		8,923		24,977		1,378,023		1,403,000		—
Consumer installment	2,344		1,167		735		4,246		451,125		455,371		414
Total	$	23,089	$	12,104	$	18,791	$	53,984	$	5,606,473	$	5,660,457	$	4,222

The following table presents an analysis of purchased past-due loans as of March 31, 2019 and December 31, 2018:



(dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
March 31, 2019
Commercial, financial and agricultural	$	3,551	$	45	$	1,209	$	4,805	$	323,167	$	327,972	$	—
Real estate – construction and development	1,112		—		5,473		6,585		232,828		239,413		—
Real estate – commercial and farmland	3,003		170		2,403		5,576		1,274,939		1,280,515		—
Real estate – residential	7,488		1,747		5,317		14,552		583,183		597,735		—
Consumer installment	732		97		269		1,098		25,538		26,636		—
Total	$	15,886	$	2,059	$	14,671	$	32,616	$	2,439,655	$	2,472,271	$	—

December 31, 2018
Commercial, financial and agricultural	$	421	$	416	$	1,015	$	1,852	$	370,834	$	372,686	$	—
Real estate – construction and development	627		370		5,273		6,270		221,630		227,900		—
Real estate – commercial and farmland	1,935		736		1,698		4,369		1,333,490		1,337,859		—
Real estate – residential	12,531		2,407		7,005		21,943		601,256		623,199		—
Consumer installment	679		237		249		1,165		26,023		27,188		—
Total	$	16,193	$	4,166	$	15,240	$	35,599	$	2,553,233	$	2,588,832	$	—

Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considers the borrower’s capacity to pay, which includes such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. The Company individually assesses for impairment all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000 (including all troubled debt restructurings, whether or not currently classified as such). The tables below include all loans deemed impaired, whether or not individually assessed for impairment. If a loan is deemed impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.

The following is a summary of information pertaining to impaired loans, excluding purchased loans:



	As of and for the Period Ended
(dollars in thousands)	March 31, 2019		December 31, 2018		March 31, 2018
Nonaccrual loans	$	17,633	$	17,952	$	14,420
Troubled debt restructurings not included above	11,463		9,323		11,375
Total impaired loans	$	29,096	$	27,275	$	25,795

Quarter-to-date interest income recognized on impaired loans	$	182	$	202	$	239
Quarter-to-date foregone interest income on impaired loans	$	209	$	217	$	190

The following table presents an analysis of information pertaining to impaired loans, excluding purchased loans as of March 31, 2019, December 31, 2018 and March 31, 2018:



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
March 31, 2019
Commercial, financial and agricultural	$	1,761	$	871	$	593	$	1,464	$	180	$	1,566
Real estate – construction and development	1,727		621		764		1,385		209		1,211
Real estate – commercial and farmland	7,066		663		5,788		6,451		578		6,984
Real estate – residential	19,693		6,893		12,466		19,359		712		17,934
Consumer installment	453		437		—		437		—		491
Total	$	30,700	$	9,485	$	19,611	$	29,096	$	1,679	$	28,186



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
December 31, 2018
Commercial, financial and agricultural	$	1,902	$	1,155	$	513	$	1,668	$	4	$	1,736
Real estate – construction and development	1,378		613		424		1,037		3		1,229
Real estate – commercial and farmland	8,950		867		6,649		7,516		1,591		7,537
Real estate – residential	16,885		5,144		11,365		16,509		867		14,719
Consumer installment	561		545		—		545		—		584
Total	$	29,676	$	8,324	$	18,951	$	27,275	$	2,465	$	25,805



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
March 31, 2018
Commercial, financial and agricultural	$	1,874	$	985	$	602	$	1,587	$	136	$	1,467
Real estate – construction and development	746		567		127		694		1		833
Real estate – commercial and farmland	9,515		522		7,639		8,161		1,216		7,753
Real estate – residential	14,908		4,912		9,946		14,858		980		14,891
Consumer installment	526		495		—		495		—		492
Total	$	27,569	$	7,481	$	18,314	$	25,795	$	2,333	$	25,436

The following is a summary of information pertaining to purchased impaired loans:



	As of and for the Period Ended
(dollars in thousands)	March 31, 2019		December 31, 2018		March 31, 2018
Nonaccrual loans	$	23,846	$	24,107	$	15,940
Troubled debt restructurings not included above	19,443		18,740		20,649
Total impaired loans	$	43,289	$	42,847	$	36,589

Quarter-to-date interest income recognized on impaired loans	$	672	$	918	$	696
Quarter-to-date foregone interest income on impaired loans	$	520	$	451	$	245

The following table presents an analysis of information pertaining to purchased impaired loans as of March 31, 2019, December 31, 2018 and March 31, 2018:



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
March 31, 2019
Commercial, financial and agricultural	$	11,125	$	2,795	$	1,094	$	3,889	$	—	$	2,560
Real estate – construction and development	13,295		605		6,339		6,944		497		7,039
Real estate – commercial and farmland	13,448		1,546		9,618		11,164		670		11,431
Real estate – residential	22,825		8,823		11,876		20,699		629		21,500
Consumer installment	680		593		—		593		—		540
Total	$	61,373	$	14,362	$	28,927	$	43,289	$	1,796	$	43,070



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
December 31, 2018
Commercial, financial and agricultural	$	5,717	$	473	$	757	$	1,230	$	—	$	1,101
Real estate – construction and development	13,714		623		6,511		7,134		476		7,240
Real estate – commercial and farmland	14,766		1,115		10,581		11,696		684		13,514
Real estate – residential	24,839		8,185		14,116		22,301		773		23,146
Consumer installment	526		486		—		486		—		487
Total	$	59,562	$	10,882	$	31,965	$	42,847	$	1,933	$	45,488



(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment
March 31, 2018
Commercial, financial and agricultural	$	4,050	$	52	$	744	$	796	$	396	$	805
Real estate – construction and development	9,012		426		3,720		4,146		913		4,152
Real estate – commercial and farmland	12,590		861		10,230		11,091		767		11,744
Real estate – residential	22,820		8,426		12,093		20,519		745		19,502
Consumer installment	46		37		—		37		—		43
Total	$	48,518	$	9,802	$	26,787	$	36,589	$	2,821	$	36,246

Credit Quality Indicators

The Company uses a nine category risk grading system to assign a risk grade to each loan in the portfolio. The following is a description of the general characteristics of the grades:

Grade 1 – Prime Credit – This grade represents loans to the Company’s most creditworthy borrowers or loans that are secured by cash or cash equivalents.

Grade 2 – Strong Credit – This grade includes loans that exhibit one or more characteristics better than that of a Good Credit. Generally, the debt service coverage and borrower’s liquidity is materially better than required by the Company’s loan policy.

Grade 3 – Good Credit – This grade is assigned to loans to borrowers who exhibit satisfactory credit histories, contain acceptable loan structures and demonstrate ability to repay.

Grade 4 – Satisfactory Credit – This grade includes loans which exhibit all the characteristics of a Good Credit, but warrant more than normal level of banker supervision due to (i) circumstances which elevate the risks of performance (such as start-up operations, untested management, heavy leverage and interim losses); (ii) adverse, extraordinary events that have affected, or could affect, the borrower’s cash flow, financial condition, ability to continue operating profitability or refinancing (such as death of principal, fire and divorce); (iii) loans that require more than the normal servicing requirements (such as any type of construction financing, acquisition and development loans, accounts receivable or inventory loans and floor plan loans); (iv) existing technical exceptions which raise some doubts about the Bank’s perfection in its collateral position or the continued financial capacity of the borrower; or (v) improvements in formerly criticized borrowers, which may warrant banker supervision.

Grade 5 – Fair Credit – This grade is assigned to loans that are currently performing and supported by adequate financial information that reflects repayment capacity but exhibits a loan-to-value ratio greater than 110%, based on a documented collateral valuation.

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.

The following table presents the loan portfolio, excluding purchased loans, by risk grade as of March 31, 2019 and December 31, 2018 (in thousands):



Risk Grade	Commercial, Financial and Agricultural		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Consumer Installment		Total
March 31, 2019
1	$	528,386	$	—	$	724	$	694	$	10,842	$	540,646
2	521,486		516		33,656		31,944		20		587,622
3	152,722		66,180		923,222		1,206,722		23,269		2,372,115
4	161,089		593,309		834,693		98,050		401,672		2,088,813
5	13,131		11,560		56,333		6,741		20		87,785
6	3,557		1,415		23,534		4,372		71		32,949
7	2,536		3,583		22,775		16,959		575		46,428
8	—		—		—		—		—		—
9	—		—		—		—		—		—
Total	$	1,382,907	$	676,563	$	1,894,937	$	1,365,482	$	436,469	$	5,756,358

December 31, 2018
1	$	530,864	$	40	$	500	$	16	$	10,744	$	542,164
2	452,250		681		37,079		33,043		48		523,101
3	174,811		74,657		888,433		1,246,383		23,844		2,408,128
4	137,038		582,456		814,068		94,143		419,983		2,047,688
5	13,714		6,264		30,364		8,634		78		59,054
6	5,130		4,091		20,959		4,881		57		35,118
7	2,552		3,009		23,126		15,900		617		45,204
8	—		—		—		—		—		—
9	—		—		—		—		—		—
Total	$	1,316,359	$	671,198	$	1,814,529	$	1,403,000	$	455,371	$	5,660,457

The following table presents the purchased loan portfolio by risk grade as of March 31, 2019 and December 31, 2018 (in thousands):



Risk Grade	Commercial, Financial and Agricultural		Real Estate - Construction and Development		Real Estate - Commercial and Farmland		Real Estate - Residential		Consumer Installment		Total
March 31, 2019
1	$	80,138	$	—	$	—	$	—	$	544	$	80,682
2	5,313		—		9,446		70,003		142		84,904
3	20,562		12,759		270,517		371,501		2,379		677,718
4	168,472		207,413		913,144		116,762		22,562		1,428,353
5	22,982		4,765		48,763		13,847		34		90,391
6	10,614		4,598		15,816		7,441		130		38,599
7	19,891		9,878		22,829		18,181		839		71,618
8	—		—		—		—		—		—
9	—		—		—		—		6		6
Total	$	327,972	$	239,413	$	1,280,515	$	597,735	$	26,636	$	2,472,271

December 31, 2018
1	$	90,205	$	—	$	—	$	—	$	570	$	90,775
2	2,648		—		7,407		74,398		164		84,617
3	20,489		18,022		230,089		385,279		2,410		656,289
4	215,096		195,079		1,034,943		118,082		23,177		1,586,377
5	14,445		2,728		29,468		16,937		35		63,613
6	11,601		1,459		10,063		7,231		94		30,448
7	18,202		10,612		25,889		21,272		738		76,713
8	—		—		—		—		—		—
9	—		—		—		—		—		—
Total	$	372,686	$	227,900	$	1,337,859	$	623,199	$	27,188	$	2,588,832

Troubled Debt Restructurings

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession. Concessions may include interest rate reductions to below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. The Company has exhibited the greatest success for rehabilitation of the loan by a reduction in the rate alone (maintaining the amortization of the debt) or a combination of a rate reduction and the forbearance of previously past due interest or principal. This has most typically been evidenced in certain commercial real estate loans whereby a disruption in the borrower’s cash flow resulted in an extended past due status, of which the borrower was unable to catch up completely as the cash flow of the property ultimately stabilized at a level lower than its original level. A reduction in rate, coupled with a forbearance of unpaid principal and/or interest, allowed the net cash flows to service the debt under the modified terms.

The Company’s policy requires a restructure request to be supported by a current, well-documented credit evaluation of the borrower’s financial condition and a collateral evaluation that is no older than six months from the date of the restructure. Key factors of that evaluation include the documentation of current, recurring cash flows, support provided by the guarantor(s) and the current valuation of the collateral. If the appraisal in the file is older than six months, an evaluation must be made as to the continued reasonableness of the valuation. For certain income-producing properties, current rent rolls and/or other income information can be utilized to support the appraisal valuation, when coupled with documented cap rates within our markets and a physical inspection of the collateral to validate the current condition.

The Company’s policy states that in the event a loan has been identified as a troubled debt restructuring, it should be assigned a grade of substandard and placed on nonaccrual status until such time the borrower has demonstrated the ability to service the loan payments based on the restructured terms – generally defined as six months of satisfactory payment history. Missed payments under the original loan terms are not considered under the new structure; however, subsequent missed payments are considered non-performance and are not considered toward the six month required term of satisfactory payment history. The Company’s loan policy states that a nonaccrual loan may be returned to accrual status when (i) none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest or (ii) it otherwise becomes well secured and in the process of collection. Restoration to accrual status on any given loan must be supported by a well-documented credit evaluation of the borrower’s financial condition and the prospects for full repayment and approved by the Company’s Chief Credit Officer.

In the normal course of business, the Company renews loans with a modification of the interest rate or terms that are not deemed as troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first three months of 2019 and 2018 totaling $26.9 million and $28.6 million, respectively, under such parameters.

As of March 31, 2019 and December 31, 2018, the Company had a balance of $12.9 million and $11.0 million, respectively, in troubled debt restructurings, excluding purchased loans. The Company has recorded $893,000 and $890,000 in previous charge-offs on such loans at March 31, 2019 and December 31, 2018, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $728,000 and $820,000 at March 31, 2019 and December 31, 2018, respectively. At March 31, 2019, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

During the three months ended March 31, 2019 and 2018, the Company modified loans as troubled debt restructurings, excluding purchased loans, with principal balances of $2.2 million and $1.2 million, respectively, and these modifications did not have a material impact on the Company’s allowance for loan loss. The following table presents the loans by class modified as troubled debt restructurings, excluding purchased loans, which occurred during the three months ended March 31, 2019 and 2018:



	March 31, 2019			March 31, 2018
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	1	$	7	2	$	125
Real estate – construction and development	—	—		1	4
Real estate – commercial and farmland	1	33		1	303
Real estate – residential	7	2,109		2	710
Consumer installment	3	12		2	13
Total	12	$	2,161	8	$	1,155

Troubled debt restructurings, excluding purchased loans, with an outstanding balance of $837,000 and $3.0 million defaulted during the three months ended March 31, 2019 and 2018, respectively, and these defaults did not have a material impact on the Company’s allowance for loan loss. The following table presents for loans, excluding purchased loans, the troubled debt restructurings by class that defaulted (defined as 30 days past due) during the three months ended March 31, 2019 and 2018:



	March 31, 2019			March 31, 2018
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	—	$	—	—	$	—
Real estate – construction and development	—	—		—	—
Real estate – commercial and farmland	—	—		2	1,971
Real estate – residential	7	837		17	1,047
Consumer installment	—	—		—	—
Total	7	$	837	19	$	3,018

The following table presents the amount of troubled debt restructurings by loan class, excluding purchased loans, classified separately as accrual and nonaccrual at March 31, 2019 and December 31, 2018:



March 31, 2019	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	3	$	116	14	$	138
Real estate – construction and development	4	142		1	2
Real estate – commercial and farmland	13	2,954		4	450
Real estate – residential	78	8,240		19	832
Consumer installment	5	11		22	63
Total	103	$	11,463	60	$	1,485



December 31, 2018	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	5	$	256	14	$	138
Real estate – construction and development	5	145		1	2
Real estate – commercial and farmland	12	2,863		3	426
Real estate – residential	71	6,043		20	1,119
Consumer installment	6	16		24	69
Total	99	$	9,323	62	$	1,754

As of March 31, 2019 and December 31, 2018, the Company had a balance of $22.3 million and $22.2 million, respectively, in troubled debt restructurings included in purchased loans. The Company has recorded $1.1 million and $940,000 in previous charge-offs on such loans at March 31, 2019 and December 31, 2018, respectively. At March 31, 2019, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

During the three months ended March 31, 2019 and 2018, the Company modified purchased loans as troubled debt restructurings, with principal balances of $773,000 and $186,000, respectively, and these modifications did not have a material impact on the Company’s allowance for loan loss. The following table presents the purchased loans by class modified as troubled debt restructurings, which occurred during the three months ended March 31, 2019 and 2018:



	March 31, 2019			March 31, 2018
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	—	$	—	1	$	7
Real estate – construction and development	—	—		—	—
Real estate – commercial and farmland	—	—		—	—
Real estate – residential	10	740		2	179
Consumer installment	3	33		—	—
Total	13	$	773	3	$	186

Troubled debt restructurings included in purchased loans with an outstanding balance of $831,000 and $906,000 defaulted during the three months ended March 31, 2019 and 2018, respectively, and these defaults did not have a material impact on the Company’s allowance for loan loss.

The following table presents purchased loan troubled debt restructurings by class that defaulted (defined as 30 days past due) during the three months ended March 31, 2019 and 2018:



	March 31, 2019			March 31, 2018
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	1	$	3	—	$	—
Real estate – construction and development	—	—		—	—
Real estate – commercial and farmland	1	163		1	351
Real estate – residential	8	637		8	555
Consumer installment	2	28		—	—
Total	12	$	831	9	$	906

The following table presents the amount of troubled debt restructurings by loan class of purchased loans, classified separately as accrual and nonaccrual at March 31, 2019 and December 31, 2018.



March 31, 2019	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	1	$	31	3	$	29
Real estate – construction and development	4	1,011		4	268
Real estate – commercial and farmland	12	6,104		7	1,577
Real estate – residential	119	12,297		21	917
Consumer installment	—	—		7	50
Total	136	$	19,443	42	$	2,841



December 31, 2018	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	1	$	31	3	$	32
Real estate – construction and development	4	1,015		5	293
Real estate – commercial and farmland	12	6,162		7	1,685
Real estate – residential	115	11,532		24	1,424
Consumer installment	—	—		4	17
Total	132	$	18,740	43	$	3,451

Allowance for Loan Losses

The allowance for loan losses represents an allowance for probable incurred losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on non-accruing, past-due and other loans that management believes might be potentially impaired or warrant additional attention. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio. In addition, based on internal reviews and external reviews performed by regulatory authorities, the Company further segregates the loan portfolio by loan grades based on an assessment of risk for a particular loan or group of loans. Certain reviewed loans are assigned specific allowances when a review of relevant data determines that a general allocation is not sufficient or when the review affords management the opportunity to adjust the amount of exposure in a given credit. In establishing allowances, management considers historical loan loss experience but adjusts this data with a significant emphasis on current loan quality trends, current economic conditions and other factors in the markets where the Company operates. Factors considered include, among others, current valuations of real estate in the Company’s markets, unemployment rates, the effect of weather conditions on agricultural related entities and other significant local economic events, such as major plant closings.

The Company has developed a methodology for determining the adequacy of the allowance for loan losses which is monitored by the Company’s Chief Credit Officer. Procedures provide for the assignment of a risk rating for every loan included in the total loan portfolio. Commercial insurance premium finance loans, overdraft protection loans, and certain residential mortgage loans and consumer loans serviced by outside processors are treated as pools for risk rating purposes. The risk rating schedule provides nine ratings of which five ratings are classified as pass ratings and four ratings are classified as criticized ratings. Each risk rating is assigned a percentage factor to be applied to the loan balance to determine the adequate amount of reserve. The Bank’s independent internal loan review department reviews on an annual basis a sample of relationships in excess of $1,000,000, as well as selective sampling of loans below this threshold. Sampling is based on a number of factors unique to the Bank’s portfolio risks, including, but not limited to, lending divisions, industry, risk grades, and new originations. As a result of these loan reviews, certain loans

may be identified as having deteriorating credit quality. Other loans that surface as problem loans may also be assigned specific reserves. Past-due loans are assigned risk ratings based on the number of days past due. The calculation of the allowance for loan losses, including underlying data and assumptions, is reviewed regularly by the Company’s Chief Financial Officer and the independent internal loan review department.

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

The following tables detail activity in the allowance for loan losses by portfolio segment for the three-month period ended March 31, 2019, the year ended December 31, 2018 and the three-month period ended March 31, 2018. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.



(dollars in thousands)	Commercial, Financial and Agricultural			Real Estate – Construction and Development			Real Estate – Commercial and Farmland			Real Estate – Residential			Consumer Installment			Purchased Loans			Purchased Loan Pools			Total
Three Months Ended March 31, 2019
Balance, December 31, 2018	$	4,287		$	3,734		$	8,975		$	5,363		$	3,795		$	1,933		$	732		$	28,819
Provision for loan losses	1,180			218			841			(240		)	1,870			(426		)	(35		)	3,408
Loans charged off	(2,004		)	(25		)	(1,253		)	(20		)	(1,893		)	(184		)	—			(5,379		)
Recoveries of loans previously charged off	1,065			1			4			104			164			473			—			1,811
Balance, March 31, 2019	$	4,528		$	3,928		$	8,567		$	5,207		$	3,936		$	1,796		$	697		$	28,659

Period-end allocation:
Loans individually evaluated for impairment ⁽¹⁾	$	680		$	209		$	578		$	712		$	—		$	1,796		$	1		$	3,976
Loans collectively evaluated for impairment	3,848			3,719			7,989			4,495			3,936			—			696			24,683
Ending balance	$	4,528		$	3,928		$	8,567		$	5,207		$	3,936		$	1,796		$	697		$	28,659

Loans:
Individually evaluated for impairment⁽¹⁾	$	2,699		$	764		$	5,788		$	12,466		$	—		$	29,097		$	400		$	51,214
Collectively evaluated for impairment	1,380,208			675,799			1,889,149			1,353,016			436,469			2,361,145			253,310			8,349,096
Acquired with deteriorated credit quality	—			—			—			—			—			82,029			—			82,029
Ending balance	$	1,382,907		$	676,563		$	1,894,937		$	1,365,482		$	436,469		$	2,472,271		$	253,710		$	8,482,339

(1) At March 31, 2019, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.



(dollars in thousands)	Commercial, Financial and Agricultural			Real Estate – Construction and Development			Real Estate – Commercial and Farmland			Real Estate – Residential			Consumer Installment			Purchased Loans			Purchased Loan Pools			Total
Twelve Months Ended December 31, 2018
Balance, December 31, 2017	$	3,631		$	3,629		$	7,501		$	4,786		$	1,916		$	3,253		$	1,075		$	25,791
Provision for loan losses	10,690			277			1,636			1,002			5,569			(2,164		)	(343		)	16,667
Loans charged off	(13,803		)	(292		)	(338		)	(771		)	(4,189		)	(1,738		)	—			(21,131		)
Recoveries of loans previously charged off	3,769			120			176			346			499			2,582			—			7,492
Balance, December 31, 2018	$	4,287		$	3,734		$	8,975		$	5,363		$	3,795		$	1,933		$	732		$	28,819

Period-end allocation:
Loans individually evaluated for impairment⁽¹⁾	$	570		$	3		$	1,591		$	867		$	—		$	1,933		$	—		$	4,964
Loans collectively evaluated for impairment	3,717			3,731			7,384			4,496			3,795			—			732			23,855
Ending balance	$	4,287		$	3,734		$	8,975		$	5,363		$	3,795		$	1,933		$	732		$	28,819

Loans:
Individually evaluated for impairment ⁽¹⁾	$	3,211		$	424		$	6,649		$	11,364		$	—		$	32,244		$	—		$	53,892
Collectively evaluated for impairment	1,313,148			670,774			1,807,880			1,391,636			455,371			2,468,996			262,625			8,370,430
Acquired with deteriorated credit quality	—			—			—			—			—			87,592			—			87,592
Ending balance	$	1,316,359		$	671,198		$	1,814,529		$	1,403,000		$	455,371		$	2,588,832		$	262,625		$	8,511,914

(1) At December 31, 2018, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.



(dollars in thousands)	Commercial, Financial and Agricultural			Real Estate – Construction and Development			Real Estate – Commercial and Farmland			Real Estate – Residential			Consumer Installment			Purchased Loans			Purchased Loan Pools			Total
Three Months Ended March 31, 2018
Balance, December 31, 2017	$	3,631		$	3,629		$	7,501		$	4,786		$	1,916		$	3,253		$	1,075		$	25,791
Provision for loan losses	783			(171		)	689			177			1,151			(747		)	(81		)	1,801
Loans charged off	(1,449		)	—			(142		)	(198		)	(962		)	(121		)	—			(2,872		)
Recoveries of loans previously charged off	656			114			24			182			67			437			—			1,480
Balance, March 31, 2018	$	3,621		$	3,572		$	8,072		$	4,947		$	2,172		$	2,822		$	994		$	26,200

Period-end allocation:
Loans individually evaluated for impairment⁽¹⁾	$	533		$	1		$	1,216		$	980		$	—		$	2,822		$	176		$	5,728
Loans collectively evaluated for impairment	3,088			3,571			6,856			3,967			2,172			—			818			20,472
Ending balance	$	3,621		$	3,572		$	8,072		$	4,947		$	2,172		$	2,822		$	994		$	26,200

Loans:
Individually evaluated for impairment ⁽¹⁾	$	2,147		$	126		$	7,639		$	9,946		$	—		$	28,167		$	902		$	48,927
Collectively evaluated for impairment	1,385,290			631,378			1,629,015			1,070,082			316,363			683,784			318,696			6,034,608
Acquired with deteriorated credit quality	—			—			—			—			—			106,636			—			106,636
Ending balance	$	1,387,437		$	631,504		$	1,636,654		$	1,080,028		$	316,363		$	818,587		$	319,598		$	6,190,171

(1) At March 31, 2018, loans individually evaluated for impairment includes all nonaccrual loans greater than $100,000 and all troubled debt restructurings greater than $100,000, including all troubled debt restructurings and not only those currently classified as troubled debt restructurings.

NOTE 6 – OTHER REAL ESTATE OWNED

The following is a summary of the activity in OREO during the three months ended March 31, 2019 and 2018:



(dollars in thousands)	March 31, 2019			March 31, 2018
Beginning balance, January 1	$	7,218		$	8,464
Loans transferred to other real estate owned	264			1,176
Net gains (losses) on sale and write-downs recorded in statement of income	(100		)	101
Sales proceeds	(1,368		)	(495		)
Other	—			(75		)
Ending balance	$	6,014		$	9,171

The following is a summary of the activity in purchased OREO during the three months ended March 31, 2019 and 2018:



(dollars in thousands)	March 31, 2019			March 31, 2018
Beginning balance, January 1	$	9,535		$	9,011
Loans transferred to other real estate owned	2,523			457
Portion of gains (losses) on sale and write-downs payable to (receivable from) the FDIC under loss-sharing agreements	(31		)	—
Net gains (losses) on sale and write-downs recorded in statement of income	91			(134		)
Sales proceeds	(1,242		)	(2,611		)
Other	(19		)	—
Ending balance	$	10,857		$	6,723

NOTE 7 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Company classifies the sales of securities under agreements to repurchase as short-term borrowings. The amounts received under these agreements are reflected as a liability in the Company’s consolidated balance sheets and the investment securities underlying these agreements are included in investment securities in the Company’s consolidated balance sheets. At March 31, 2019 and December 31, 2018, all securities sold under agreements to repurchase mature on a daily basis. The market value of the securities fluctuate on a daily basis due to market conditions. The Company monitors the market value of the securities underlying these agreements on a daily basis and is required to transfer additional securities if the market value of the securities falls below the repurchase agreement price. The Company maintains an unpledged securities portfolio that it believes is sufficient to protect against a decline in the market value of the securities sold under agreements to repurchase.

The following is a summary of the Company’s securities sold under agreements to repurchase at March 31, 2019 and December 31, 2018.



(dollars in thousands)	March 31, 2019		December 31, 2018
Securities sold under agreements to repurchase	$	4,259	$	20,384

At March 31, 2019 and December 31, 2018, the investment securities underlying these agreements were comprised of mortgage-backed securities.

NOTE 8 – OTHER BORROWINGS

Other borrowings consist of the following:



(dollars in thousands)	March 31, 2019		December 31, 2018
FHLB borrowings:
Convertible Flipper Advance due May 22, 2019; current interest rate of 4.68%	$	1,505	$	1,514
Principal Reducing Advance due June 20, 2019; fixed interest rate of 1.274%	250		500
Fixed Rate Advance due December 9, 2030; fixed interest rate of 4.55%	1,431		1,434
Fixed Rate Advance due December 9, 2030; fixed interest rate of 4.55%	990		993
Principal Reducing Advance due September 29, 2031; fixed interest rate of 3.095%	1,822		1,858
Subordinated notes payable:
Subordinated notes payable due March 15, 2027 net of unamortized debt issuance cost of $1,041 and $1,074, respectively; fixed interest rate of 5.75% through March 14, 2022; variable interest rate thereafter at three-month LIBOR plus 3.616%	73,959		73,926
Other debt:
Advance from correspondent bank due October 5, 2019; secured by a loan receivable; fixed interest rate of 4.25%	13		20
Advance from correspondent bank due September 5, 2026; secured by a loan receivable; fixed interest rate of 2.09%	1,484		1,529
Advances under revolving credit agreement with a regional bank due September 26, 2020; secured by subsidiary bank stock; variable interest rate at 90-day LIBOR plus 3.50% (6.13% at March 31, 2019)	70,000		70,000
Total	$	151,454	$	151,774

The advances from the FHLB are collateralized by a blanket lien on all eligible first mortgage loans and other specific loans in addition to FHLB stock. At March 31, 2019, $2.04 billion was available for borrowing on lines with the FHLB.

At March 31, 2019, the Company had a revolving credit arrangement with a regional bank with a maximum line amount of $100.0 million. This line of credit is secured by subsidiary bank stock, expires on September 26, 2020, and bears a variable interest rate of 90-day LIBOR plus 3.50%. At March 31, 2019, there was $30.0 million available for borrowing under the revolving credit arrangement.

As of March 31, 2019, the Bank maintained credit arrangements with various financial institutions to purchase federal funds up to $117.0 million.

The Bank also participates in the Federal Reserve discount window borrowings program. At March 31, 2019, the Company had $1.60 billion of loans pledged at the Federal Reserve discount window and had $1.11 billion available for borrowing.

NOTE 9 – SHAREHOLDERS’ EQUITY

Common Stock Repurchase Program

On October 25, 2018, the Company announced that its Board of Directors authorized the Company to repurchase up to $100.0 million of its outstanding common stock. Repurchases of shares, which are authorized to occur within the succeeding twelve months, must be made in accordance with applicable securities laws and may be made from time to time in the open market or by negotiated transactions. The amount and timing of repurchases will be based on a variety of factors, including share acquisition price, regulatory limitations and other market and economic factors. The program does not require the Company to repurchase any specific number of shares. As of March 31, 2019, no shares of the Company's common stock had been repurchased under the program.

Hamilton Acquisition

On June 29, 2018, the Company issued 6,548,385 shares of its common stock to the shareholders of Hamilton. Such shares had a value of $53.35 per share at the time of issuance, resulting in an increase in shareholders’ equity of $349.4 million.

For additional information regarding the Hamilton acquisition, see Note 3.

Atlantic Acquisition

On May 25, 2018, the Company issued 2,631,520 shares of its common stock to the shareholders of Atlantic. Such shares had a value of $56.15 per share at the time of issuance, resulting in an increase in shareholders’ equity of $147.8 million.

For additional information regarding the Atlantic acquisition, see Note 3.

USPF Acquisition

On January 18, 2017, in exchange for 4.99% of the outstanding shares of common stock of USPF, the Company issued 128,572 unregistered shares of its common stock to a selling shareholder of USPF. A registration statement was filed with the Securities and Exchange Commission on February 13, 2017 to register the resale or other disposition of these shares. The issuance of the 128,572 common shares, valued at $45.45 per share at the time of issuance, resulted in an increase in shareholders’ equity of $5.8 million.

On January 3, 2018, in exchange for 25.01% of the outstanding shares of common stock of USPF, the Company issued 114,285 unregistered shares of its common stock and paid $12.5 million in cash to a selling shareholder of USPF. The issuance of the 114,285 common shares, valued at $48.55 per share at the time of issuance, resulted in an increase in shareholders’ equity of $5.5 million.

On January 31, 2018, in exchange for the final 70% of the outstanding shares of common stock of USPF, the Company issued 830,301 unregistered shares of its common stock and paid $8.9 million in cash to the selling shareholders of USPF. The issuance of the 830,301 common shares, valued at $53.55 per share at the time of issuance, resulted in an increase in shareholders’ equity of $44.5 million. The selling shareholders of USPF may receive additional cash payments aggregating up to $5.8 million based on the achievement by the Company's premium finance division of certain income targets, between January 1, 2018 and June 30, 2019.

On February 16, 2018, a registration statement was filed with the Securities and Exchange Commission to register the resale or other disposition of the combined 944,586 shares issued on January 3, 2018 and January 31, 2018.

For additional information regarding the USPF acquisition, see Note 3.

NOTE 10 – ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive income (loss) for the Company consists of changes in net unrealized gains and losses on investment securities available for sale and an interest rate swap derivative designated as a cash flow hedge. The reclassification of gains included in net income is recorded in gain on securities in the consolidated statement of income and comprehensive income. The following tables present a summary of the accumulated other comprehensive loss balances, net of tax, as of March 31, 2019 and 2018:



(dollars in thousands)	Unrealized Gain (Loss) on Derivatives			Unrealized Gain (Loss) on Securities			Accumulated Other Comprehensive Loss
Balance, December 31, 2018	$	351		$	(5,177	)	$	(4,826	)
Reclassification for gains included in net income, net of tax	—			(46		)	(46		)
Current year changes, net of tax	(173		)	3,867			3,694
Balance, March 31, 2019	$	178		$	(1,356	)	$	(1,178	)



(dollars in thousands)	Unrealized Gain (Loss) on Derivatives			Unrealized Gain (Loss) on Securities			Accumulated Other Comprehensive Loss
Balance, December 31, 2017	$	292		$	(1,572	)	$	(1,280	)
Reclassification to retained earnings due to change in federal corporate tax rate	(53		)	(339		)	(392		)
Adjusted balance, January 1, 2018	239			(1,911		)	(1,672		)
Reclassification for gains included in net income, net of tax	—			(29		)	(29		)
Current year changes, net of tax	281			(9,403		)	(9,122		)
Balance, March 31, 2018	$	520		$	(11,343	)	$	(10,823	)

NOTE 11 – WEIGHTED AVERAGE SHARES OUTSTANDING

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



	Three Months Ended March 31,
(share data in thousands)	2019	2018
Average common shares outstanding	47,366	37,967
Common share equivalents:
Stock options	—	18
Nonvested restricted share grants	90	265
Average common shares outstanding, assuming dilution	47,456	38,250

For the three-month periods ended March 31, 2019 and 2018, there were no potential common shares with strike prices that would cause them to be anti-dilutive.

NOTE 12 – LEASES

The Company has entered into various operating leases for certain branch locations, ATM locations, loan production offices, and corporate support services locations with terms extending through June 2028. Generally, these leases have initial lease terms of ten years or less. Many of the leases have one or more lease renewal options. The exercise of lease renewal options is at our sole discretion. The Company does not consider exercise of any lease renewal options reasonably certain. Certain of our lease agreements contain early termination options. No renewal options or early termination options have been included in the calculation of the operating right-of-use assets or operating lease liabilities. Certain of our lease agreements provide for periodic adjustments to rental payments for inflation. As the majority of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate at the commencement date in determining the present value of lease payments. The incremental borrowing rate is based on the term of the lease. Incremental borrowing rates on January 1, 2019 were used for operating leases that commenced prior to that date. Leases with an initial term of 12 months or less are not recorded on the balance sheet. For these short-term leases, lease expense is recognized on a straight-line basis over the lease term. At March 31, 2019, the Company had no leases classified as finance leases.

Operating lease cost was $1.8 million for the three months ended March 31, 2019. For the three months ended March 31, 2019, the Company had no sublease income offsetting operating lease cost. Variable rent expense and short-term lease expense were not material for the three months ended March 31, 2019.

The following table presents the impact of leases on the Company's consolidated balance sheet at March 31, 2019:



(dollars in thousands)	Location	March 31, 2019
Operating lease right-of-use assets	Other assets	$	25,739
Operating lease liabilities	Other liabilities	28,080

Future maturities of the Company's operating lease liabilities are summarized as follows:



(dollars in thousands)
Twelve Months Ended March 31,	Lease Liability
2020	$	6,025
2021	5,175
2022	4,679
2023	4,244
2024	3,307
After March 31, 2024	7,467
Total lease payments	$	30,897
Less: Interest	(2,817		)
Present value of lease liabilities	$	28,080



Supplemental lease information
(dollars in thousands)	March 31, 2019
Weighted-average remaining lease term (years)	6.4
Weighted-average discount rate	2.93		%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (cash payments)	$	1,775
Operating cash flows from operating leases (lease liability reduction)	$	1,571
Operating lease right-of-use assets obtained in exchange for leases entered into during the period	$	—

NOTE 13 – FAIR VALUE MEASURES

The fair value of an asset or liability is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair value is based on discounted cash flows or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability. The accounting standard for disclosures about the fair value measures excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The Company's loans held for sale are carried at fair value and are comprised of the following:



(dollars in thousands)	March 31, 2019		December 31, 2018
Mortgage loans held for sale	$	109,442	$	107,428
SBA loans held for sale	2,628		3,870
Total loans held for sale	$	112,070	$	111,298

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. Net losses of $150,000 and $1.6 million resulting from fair value changes of these mortgage loans were recorded in income during the three months ended March 31, 2019 and 2018, respectively. Net gains of $2.5 million and $1.6 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 months ended March 31, 2019 and 2018, respectively. The change in fair value of both mortgage loans held for sale and the related derivative financial instruments are recorded in mortgage banking activity in the consolidated statements of income and comprehensive income. The Company’s valuation of mortgage loans held for sale incorporates an assumption for credit risk; however, given the short-term period that the Company holds these loans, valuation adjustments attributable to instrument-specific credit risk is nominal.

The following table summarizes the difference between the fair value and the principal balance for mortgage loans held for sale measured at fair value as of March 31, 2019 and December 31, 2018:



(dollars in thousands)	March 31, 2019		December 31, 2018
Aggregate fair value of mortgage loans held for sale	$	109,442	$	107,428
Aggregate unpaid principal balance	105,482		103,319
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 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 impaired loans and OREO. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following methods and assumptions were used by the Company in estimating the fair value of its assets and liabilities recorded at fair value and for estimating the fair value of its financial instruments:

Cash and Due From Banks, Federal Funds Sold and Interest-Bearing Deposits in Banks, and Time Deposits in Other Banks: The carrying amount of cash and due from banks, federal funds sold and interest-bearing deposits in banks, and time deposits in other banks approximates fair value.

Investment Securities Available for Sale: The fair value of securities available for sale is determined by various valuation methodologies. Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Level 2 securities include certain U.S. agency bonds, mortgage-backed securities, collateralized mortgage and debt obligations, and municipal securities. The Level 2 fair value pricing is provided by an independent third party and is based upon similar securities in an active market. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and may include certain residual municipal securities and other less liquid securities.

Loans Held for Sale: The Company records loans held for sale at fair value. The fair value of loans held for sale is determined on outstanding commitments from third party investors in the secondary markets and is classified within Level 2 of the valuation hierarchy.

Loans: The fair value for loans held for investment is estimated using an exit price methodology. An exit price methodology considers expected cash flows that take into account contractual loan terms, as applicable, prepayment expectations, probability of default, loss severity in the event of default, recovery lag and, in the case of variable rate loans, expectations for future interest rate movements. These cash flows are present valued at a risk adjusted discount rate, which considers the cost of funding, liquidity, servicing costs, and other factors. Because observable quoted prices seldom exist for identical or similar assets carried in loans held for investment, Level 3 inputs are primarily used to determine fair value exit pricing. The fair value of impaired loans is estimated based on discounted contractual cash flows or underlying collateral values, where applicable. A loan is determined to be impaired if the Company believes it is probable that all principal and interest amounts due according to the terms of the note will not be collected as scheduled. The fair value of impaired loans is determined in accordance with ASC 310-10, Accounting by Creditors for Impairment of a Loan, and generally results in a specific reserve established through a charge to the provision for loan losses. Losses on impaired loans are charged to the allowance when management believes the uncollectability of a loan is confirmed. Management has determined that the majority of impaired loans are Level 3 assets due to the extensive use of market appraisals.

Other Real Estate Owned: The fair value of OREO is determined using certified appraisals and internal evaluations that value the property at its highest and best uses by applying traditional valuation methods common to the industry. The Company does not hold any OREO for profit purposes and all other real estate is actively marketed for sale. In most cases, management has determined that additional write-downs are required beyond what is calculable from the appraisal to carry the property at levels that would attract buyers. Because this additional write-down is not based on observable inputs, management has determined that OREO should be classified as Level 3.

Accrued Interest Receivable/Payable: The carrying amount of accrued interest receivable and accrued interest payable approximates fair value.

Deposits: The carrying amount of demand deposits, savings deposits and variable-rate certificates of deposit approximates fair value. The fair value of fixed-rate certificates of deposit is estimated based on discounted contractual cash flows using interest rates currently being offered for certificates of similar maturities.

Securities Sold under Agreements to Repurchase and Other Borrowings: The carrying amount of securities sold under agreements to repurchase approximates fair value and is classified as Level 1. The carrying amount of variable rate other borrowings approximates fair value and is classified as Level 1. The fair value of fixed rate other borrowings is estimated based on discounted contractual cash flows using the current incremental borrowing rates for similar borrowing arrangements and is classified as Level 2.

Subordinated Deferrable Interest Debentures: The fair value of the Company’s trust preferred securities is based on discounted cash flows using rates for securities with similar terms and remaining maturities and are classified as Level 2.

FDIC Loss-Share Payable: Because the FDIC will reimburse the Company for certain acquired loans should the Company experience a loss, an indemnification asset is recorded at fair value at the acquisition date. The indemnification asset is recognized at the same time as the indemnified loans, and measured on the same basis, subject to collectability or contractual limitations. The shared loss agreements on the acquisition date reflect the reimbursements expected to be received from the FDIC, using an appropriate discount rate, which reflects counterparty credit risk and other uncertainties. The shared loss agreements continue to be measured on the same basis as the related indemnified loans, and the loss-share receivable is impacted by changes in estimated cash flows associated with these loans.

Pursuant to the clawback provisions of the loss-sharing agreements for the Company’s FDIC-assisted acquisitions, the Company may be required to reimburse the FDIC should actual losses be less than certain thresholds established in each loss-sharing agreement. The amount of the clawback provision for each acquisition is measured and recorded at fair value. The clawback amount, which is payable to the FDIC upon termination of the applicable loss-sharing agreement, is discounted using an appropriate discount rate.

Off-Balance-Sheet Instruments: Because commitments to extend credit and standby letters of credit are typically made using variable rates and have short maturities, the carrying value and fair value are immaterial for disclosure.

Derivatives: The Company has entered into derivative financial instruments to manage interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair value of the derivatives is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves derived from observable market interest rate curves).

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting any applicable credit enhancements such as collateral postings, thresholds, mutual puts and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself or the counterparty. However, as of March 31, 2019 and December 31, 2018, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.

The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of March 31, 2019 and December 31, 2018:



	Recurring Basis Fair Value Measurements
	March 31, 2019
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
Financial assets:
State, county and municipal securities	$	107,740	$	—	$	107,740	$	—
Corporate debt securities	57,152		—		55,652		1,500
Mortgage-backed securities	1,069,543		—		1,069,543		—
Loans held for sale	112,070		—		112,070		—
Mortgage banking derivative instruments	5,118		—		5,118		—
Total recurring assets at fair value	$	1,351,623	$	—	$	1,350,123	$	1,500
Financial liabilities:
Derivative financial instruments	$	31	$	—	$	31	$	—
Mortgage banking derivative instruments	1,315		—		1,315		—
Total recurring liabilities at fair value	$	1,346	$	—	$	1,346	$	—



	Recurring Basis Fair Value Measurements
	December 31, 2018
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
Financial assets:
State, county and municipal securities	$	150,733	$	—	$	150,733	$	—
Corporate debt securities	67,314		—		65,814		1,500
Mortgage-backed securities	974,376		—		974,376		—
Loans held for sale	111,298		—		111,298		—
Derivative financial instruments	102		—		102		—
Mortgage banking derivative instruments	2,537		—		2,537		—
Total recurring assets at fair value	$	1,306,360	$	—	$	1,304,860	$	1,500
Financial liabilities:
Mortgage banking derivative instruments	$	1,276	$	—	$	1,276	$	—
Total recurring liabilities at fair value	$	1,276	$	—	$	1,276	$	—

The following table presents the fair value measurements of assets measured at fair value on a non-recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy as of March 31, 2019 and December 31, 2018:



	Nonrecurring Basis Fair Value Measurements
(dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
March 31, 2019
Impaired loans carried at fair value	$	31,397	$	—	$	—	$	31,397
Purchased other real estate owned	10,857		—		—		10,857
Total nonrecurring assets at fair value	$	42,254	$	—	$	—	$	42,254

December 31, 2018
Impaired loans carried at fair value	$	28,653	$	—	$	—	$	28,653
Other real estate owned	408		—		—		408
Purchased other real estate owned	9,535		—		—		9,535
Total nonrecurring assets at fair value	$	38,596	$	—	$	—	$	38,596

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

For the three months ended March 31, 2019 and the year ended December 31, 2018, there was not a change in the methods and significant assumptions used to estimate fair value.

The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets:



(dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range of Discounts	Weighted Average Discount
March 31, 2019
Recurring:
Investment securities available for sale	$	1,500	Discounted par values	Credit quality of underlying issuer	0%	0%
Nonrecurring:
Impaired loans	$	31,397	Third-party appraisals and discounted cash flows	Collateral discounts and discount rates	20% - 92%	27%
Purchased other real estate owned	$	10,857	Third-party appraisals	Collateral discounts and estimated costs to sell	10% - 75%	36%

December 31, 2018
Recurring:
Investment securities available for sale	$	1,500	Discounted par values	Credit quality of underlying issuer	0%	0%
Nonrecurring:
Impaired loans	$	28,653	Third-party appraisals and discounted cash flows	Collateral discounts and discount rates	3% - 53%	30%
Other real estate owned	$	408	Third-party appraisals and sales contracts	Collateral discounts and estimated costs to sell	15% - 69%	31%
Purchased other real estate owned	$	9,535	Third-party appraisals	Collateral discounts and estimated costs to sell	6% - 74%	39%

The carrying amount and estimated fair value of the Company’s financial instruments, not shown elsewhere in these financial statements, were as follows.



			Fair Value Measurements
			March 31, 2019
(dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	144,801	$	144,801	$	—	$	—	$	144,801
Federal funds sold and interest-bearing deposits in banks	712,199		712,199		—		—		712,199
Time deposits in other banks	7,371		—		7,371		—		7,371
Loans, net	8,422,283		—		—		8,357,110		8,357,110
Accrued interest receivable	37,411		—		5,366		32,045		37,411
Financial liabilities:
Deposits	$	9,800,875	$	—	$	9,797,905	$	—	$	9,797,905
Securities sold under agreements to repurchase	4,259		4,259		—		—		4,259
Other borrowings	151,454		—		152,655		—		152,655
Subordinated deferrable interest debentures	89,529		—		88,900		—		88,900
FDIC loss-share payable	18,834		—		—		18,847		18,847
Accrued interest payable	5,462		—		5,462		—		5,462



			Fair Value Measurements
			December 31, 2018
(dollars in thousands)	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and due from banks	$	172,036	$	172,036	$	—	$	—	$	172,036
Federal funds sold and interest-bearing deposits in banks	507,491		507,491		—		—		507,491
Time deposits in other banks	10,812		—		10,812		—		10,812
Loans, net	8,454,442		—		—		8,365,293		8,365,293
Accrued interest receivable	36,970		—		5,456		31,514		36,970
Financial liabilities:
Deposits	$	9,649,313	$	—	$	9,645,617	$	—	$	9,645,617
Securities sold under agreements to repurchase	20,384		20,384		—		—		20,384
Other borrowings	151,774		—		152,873		—		152,873
Subordinated deferrable interest debentures	89,187		—		90,180		—		90,180
FDIC loss-share payable	19,487		—		—		19,576		19,576
Accrued interest payable	5,669		—		5,669		—		5,669

NOTE 14 – COMMITMENTS AND CONTINGENCIES

Loan Commitments

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

The Company’s exposure to credit loss is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

A summary of the Company’s commitments is as follows:



(dollars in thousands)	March 31, 2019		December 31, 2018
Commitments to extend credit	$	1,818,407	$	1,671,419
Unused home equity lines of credit	105,780		112,310
Financial standby letters of credit	25,599		24,596
Mortgage interest rate lock commitments	158,141		81,833

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 of one year or less 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.

Other Commitments

As of March 31, 2019, a $75.0 million letter of credit issued by the FHLB was used to guarantee the Bank’s performance related to public fund deposit balances.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

NOTE 15 – SEGMENT REPORTING

The Company has the following five reportable segments: Banking Division, Retail Mortgage Division, Warehouse Lending Division, SBA Division and Premium Finance Division. The Banking Division derives its revenues from the delivery of full-service financial services, including commercial loans, consumer loans and deposit accounts. The Retail Mortgage Division derives its revenues from the origination, sales and servicing of one-to-four family residential mortgage loans. The Warehouse Lending Division derives its revenues from the origination and servicing of warehouse lines to other businesses that are secured by underlying one-to-four family residential mortgage loans. The SBA Division derives its revenues from the origination, sales and servicing of SBA loans. The Premium Finance Division derives its revenues from the origination and servicing of commercial insurance premium finance loans.

The Banking, Retail Mortgage, Warehouse Lending, SBA and Premium Finance Divisions are managed as separate business units because of the different products and services they provide. The Company evaluates performance and allocates resources based on profit or loss from operations. There are no material intersegment sales or transfers.

The following tables present selected financial information with respect to the Company’s reportable business segments for the three months ended March 31, 2019 and 2018:



	Three Months Ended March 31, 2019
(dollars in thousands)	Banking Division		Retail Mortgage Division		Warehouse Lending Division		SBA Division		Premium Finance Division		Total
Interest income	$	97,874	$	12,512	$	4,804	$	2,174	$	7,565	$	124,929
Interest expense	12,835		6,759		2,114		1,088		2,738		25,534
Net interest income	85,039		5,753		2,690		1,086		4,827		99,395
Provision for loan losses	2,058		136		—		231		983		3,408
Noninterest income	14,370		14,290		379		1,730		2		30,771
Noninterest expense
Salaries and employee benefits	27,932		8,207		161		765		1,305		38,370
Equipment and occupancy expenses	7,281		766		1		59		97		8,204
Data processing and telecommunications expenses	7,592		330		30		2		437		8,391
Other expenses	16,956		2,114		68		349		973		20,460
Total noninterest expense	59,761		11,417		260		1,175		2,812		75,425
Income before income tax expense	37,590		8,490		2,809		1,410		1,034		51,333
Income tax expense	8,775		1,613		590		296		154		11,428
Net income	$	28,815	$	6,877	$	2,219	$	1,114	$	880	$	39,905

Total assets	$	9,457,529	$	1,184,097	$	296,357	$	142,769	$	575,523	$	11,656,275
Goodwill	436,810		—		—		—		64,498		501,308
Other intangible assets, net	35,455		—		—		—		20,102		55,557



	Three Months Ended March 31, 2018
(dollars in thousands)	Banking Division		Retail Mortgage Division		Warehouse Lending Division		SBA Division		Premium Finance Division		Total
Interest income	$	60,896	$	6,822	$	2,752	$	1,431	$	7,611	$	79,512
Interest expense	5,537		1,825		897		507		1,945		10,711
Net interest income	55,359		4,997		1,855		924		5,666		68,801
Provision for loan losses	888		217		—		537		159		1,801
Noninterest income	13,099		11,585		397		1,370		13		26,464
Noninterest expense
Salaries and employee benefits	22,068		7,742		138		740		1,401		32,089
Equipment and occupancy expenses	5,477		593		—		58		70		6,198
Data processing and telecommunications expenses	6,304		389		33		9		400		7,135
Other expenses	11,080		1,731		52		236		577		13,676
Total noninterest expense	44,929		10,455		223		1,043		2,448		59,098
Income before income tax expense	22,641		5,910		2,029		714		3,072		34,366
Income tax expense	5,242		1,244		426		150		644		7,706
Net income	$	17,399	$	4,666	$	1,603	$	564	$	2,428	$	26,660

Total assets	$	6,464,130	$	613,706	$	247,257	$	109,011	$	588,724	$	8,022,828
Goodwill	125,532		—		—		—		82,981		208,513
Other intangible assets, net	12,562		—		—		—		—		12,562

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

Cautionary Note Regarding Forward-Looking Statements

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

All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation, the following: general competitive, economic, political and market conditions and fluctuations, including movements in interest rates; competitive pressures on product pricing and services; legislative and regulatory initiatives; additional competition in our markets; changes in state and federal banking laws and regulations to which we are subject; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; potential business strategies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by us; the successful integration of acquired businesses on a timely basis; the timely realization of expected cost savings and any revenue synergies from acquisition transactions; weather, natural disasters and other catastrophic events; and other factors discussed in our filings with the Securities and Exchange Commission under the Exchange Act.

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

Overview

The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of March 31, 2019, as compared with December 31, 2018, and operating results for the three-month periods ended March 31, 2019 and 2018. 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 accounting principles generally accepted in the United States of America (“GAAP”). Management of the Company uses these non-GAAP measures in its analysis of the Company’s performance. These measures are useful when evaluating the underlying performance and efficiency of the Company’s operations and balance sheet. The Company’s management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results with prior periods and demonstrate the effects of significant gains and charges in the current period. The Company’s management believes that investors may use these non-GAAP financial measures to evaluate the Company’s financial performance without the impact of unusual items that may obscure trends in the Company’s underlying performance. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Non-GAAP measures include tangible common equity, tangible book value per common share, adjusted net income, and adjusted net income per diluted share. The Company calculates the regulatory capital ratios using current regulatory report instructions. The Company’s management uses these measures to assess the quality of capital and believes that investors may find them useful in their evaluation of the Company. These capital measures may or may not be necessarily comparable to similar capital measures that may be presented by other companies.

The following table sets forth unaudited selected financial data for the most recent five quarters. This data should be read in conjunction with the unaudited consolidated financial statements and the notes thereto and the information contained in this Item 2.




(in thousands, except share and per share data)	First Quarter 2019		Fourth Quarter 2018		Third Quarter 2018		Second Quarter 2018		First Quarter 2018
Results of Operations:
Net interest income	$	99,395	$	99,554	$	99,038	$	75,999	$	68,801
Net interest income (tax equivalent)	100,453		100,633		100,117		76,943		69,787
Provision for loan losses	3,408		3,661		2,095		9,110		1,801
Noninterest income	30,771		30,470		30,171		31,307		26,464
Noninterest expense	75,425		75,810		72,353		86,386		59,098
Income tax expense	11,428		7,017		13,317		2,423		7,706
Net income available to common shareholders	39,905		43,536		41,444		9,387		26,660
Selected Average Balances:
Investment securities	$	1,225,564	$	1,187,437	$	1,185,225	$	908,782	$	860,419
Loans held for sale	101,521		129,664		151,396		141,875		138,129
Loans	5,867,037		5,819,684		5,703,921		5,198,301		4,902,082
Purchased loans	2,359,280		2,402,610		2,499,393		1,107,184		842,509
Purchased loan pools	257,661		268,568		287,859		310,594		325,113
Earning assets	10,319,954		10,220,747		10,138,029		7,818,525		7,215,742
Assets	11,423,677		11,307,980		11,204,504		8,529,035		7,823,451
Deposits	9,577,574		9,452,944		8,962,170		6,607,518		6,383,513
Shareholders’ equity	1,478,462		1,428,341		1,395,479		974,494		849,346
Period-End Balances:
Investment securities	$	1,249,592	$	1,206,878	$	1,198,499	$	1,198,472	$	880,812
Loans held for sale	112,070		111,298		130,179		137,249		111,135
Loans	5,756,358		5,660,457		5,543,306		5,380,515		5,051,986
Purchased loans	2,472,271		2,588,832		2,711,460		2,812,510		818,587
Purchased loan pools	253,710		262,625		274,752		297,509		319,598
Earning assets	10,563,571		10,348,393		10,340,558		10,110,983		7,393,048
Total assets	11,656,275		11,443,515		11,428,994		11,190,697		8,022,828
Deposits	9,800,875		9,649,313		9,181,363		8,761,593		6,446,165
Shareholders’ equity	1,495,584		1,456,347		1,404,977		1,371,896		868,944
Per Common Share Data:
Earnings per share - basic	$	0.84	$	0.92	$	0.87	$	0.24	$	0.70
Earnings per share - diluted	$	0.84	$	0.91	$	0.87	$	0.24	$	0.70
Book value per common share	$	31.43	$	30.66	$	29.58	$	28.87	$	22.67
Tangible book value per common share	$	19.73	$	18.83	$	17.78	$	17.12	$	16.90
End of period shares outstanding	47,585,309		47,499,941		47,496,966		47,518,662		38,327,081




(in thousands, except share and per share data)	First Quarter 2019			Fourth Quarter 2018			Third Quarter 2018			Second Quarter 2018			First Quarter 2018
Weighted Average Shares Outstanding:
Basic	47,366,296			47,501,150			47,514,653			39,432,021			37,966,781
Diluted	47,456,314			47,593,252			47,685,334			39,709,503			38,250,122
Market Price:
High intraday price	$	42.01		$	47.25		$	54.35		$	58.10		$	59.05
Low intraday price	$	31.27		$	29.97		$	45.15		$	50.20		$	47.90
Closing price for quarter	$	34.35		$	31.67		$	45.70		$	53.35		$	52.90
Average daily trading volume	387,800			375,773			382,622			253,413			235,964
Cash dividends declared per share	$	0.10		$	0.10		$	0.10		$	0.10		$	0.10
Closing price to book value	1.09			1.03			1.54			1.85			2.33
Performance Ratios:
Return on average assets	1.42		%	1.53		%	1.47		%	0.44		%	1.38		%
Return on average common equity	10.95		%	12.09		%	11.78		%	3.86		%	12.73		%
Average loans to average deposits	89.64		%	91.19		%	96.43		%	102.28		%	97.25		%
Average equity to average assets	12.94		%	12.63		%	12.45		%	11.43		%	10.86		%
Net interest margin (tax equivalent)	3.95		%	3.91		%	3.92		%	3.95		%	3.92		%
Efficiency ratio	57.95		%	58.30		%	56.00		%	80.50		%	62.04		%

Non-GAAP Measures Reconciliation -
Tangible book value per common share:
Total shareholders’ equity	$	1,495,584		$	1,456,347		$	1,404,977		$	1,371,896		$	868,944
Less:
Goodwill	501,308			503,434			505,604			504,764			208,513
Other intangible assets, net	55,557			58,689			54,729			53,561			12,562
Tangible common equity	$	938,719		$	894,224		$	844,644		$	813,571		$	647,869
End of period shares outstanding	47,585,309			47,499,941			47,496,966			47,518,662			38,327,081
Book value per common share	$	31.43		$	30.66		$	29.58		$	28.87		$	22.67
Tangible book value per common share	19.73			18.83			17.78			17.12			16.90

Pending Acquisition

On December 17, 2018, the Company and Fidelity entered into the Fidelity Merger Agreement, pursuant to which Fidelity will merge into Ameris, with Ameris as the surviving entity and immediately thereafter, Fidelity Bank, a Georgia bank wholly owned by Fidelity, will be merged into Ameris Bank, with Ameris Bank as the surviving entity. At March 31, 2019, Fidelity Bank operated 70 full-service banking locations, 51 of which were located in Georgia and 19 of which were located Florida, providing financial products and services to customers primarily in the metropolitan markets of Atlanta, Georgia, and Jacksonville, Orlando, Tallahassee, and Sarasota-Bradenton, Florida. Under the terms of the Fidelity Merger Agreement, Fidelity's shareholders will receive 0.80 shares of Ameris common stock, par value $1.00 per share, for each share of Fidelity common stock they hold. Each outstanding Fidelity restricted stock award will fully vest and be converted into the right to receive 0.80 shares of the Company's common stock for each share of Fidelity common stock underlying such award. Each outstanding Fidelity stock option will fully vest and be converted into an option to purchase shares of the Company's common stock, with the number of underlying shares and per share exercise price of such option adjusted to reflect the exchange ratio of 0.80. The estimated purchase price is $750.7 million in the aggregate based upon the $34.02 per share closing price of our common stock as of December 14, 2018, the last trading date before announcement. The merger is subject to customary closing conditions, including the receipt of regulatory approvals. The transaction is expected to close during the second quarter of 2019. As of December 31, 2018, Fidelity reported assets of $4.73 billion, gross loans of $3.92 billion and deposits of $3.98 billion. The purchase price will be allocated among the net assets of Fidelity acquired as appropriate, with the remaining balance being reported as goodwill.

Acquisitions Completed in 2018

During the six months ended June 30, 2018, the Company completed three acquisitions: USPF, Atlantic, and Hamilton.

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

US Premium Finance Holding Company

On January 31, 2018, the Company closed on the purchase of the final 70% of the outstanding shares of common stock of USPF, completing its acquisition of USPF and making USPF a wholly owned subsidiary of the Company. Through a series of three acquisition transactions that closed on January 18, 2017, January 3, 2018 and January 31, 2018, the Company issued a total of 1,073,158 shares of its common stock at a fair value of $55.9 million and paid $21.4 million in cash to the former shareholders of USPF. Pursuant to the terms of the Stock Purchase Agreement dated January 25, 2018 under which Company purchased the final 70% of the outstanding shares of common stock of USPF, the selling shareholders of USPF may receive additional cash payments aggregating up to $5.8 million based on the achievement by the Company's premium finance division of certain income targets, between January 1, 2018 and June 30, 2019. As of the January 31, 2018 acquisition date, the present value of the contingent earn-out consideration expected to be paid was $5.7 million. Including the fair value of the Company's common stock issued, cash paid and the present value of the contingent earn-out consideration expected to be paid, the aggregate purchase price of USPF amounted to $83.0 million. For additional information regarding the USPF acquisition see Note 3.

Atlantic Coast Financial Corporation

On May 25, 2018, the Company completed its acquisition of Atlantic. Upon consummation of the acquisition, Atlantic was merged with and into the Company, with Ameris as the surviving entity in the merger. At that time, Atlantic's wholly owned banking subsidiary, Atlantic Coast Bank, was also merged with and into the Bank. The acquisition expanded the Company's existing market presence, as Atlantic Coast Bank had a total of 12 full-service branches located in Jacksonville and Jacksonville Beach, Duval County, Florida, Waycross, Georgia and Douglas, Georgia. Under the terms of the merger agreement, Atlantic's shareholders received 0.17 shares of Ameris common stock and $1.39 in cash for each share of Atlantic common stock they previously held. As a result, the Company issued 2,631,520 common shares at a fair value of $147.8 million and paid $21.5 million in cash to the former shareholders of Atlantic as merger consideration.

In accounting for the Atlantic acquisition, the Company recorded assets (exclusive of goodwill) of $875.6 million, loans held for investment of $755.7 million, deposits of $585.2 million, and other borrowings of $204.5 million. For additional information regarding the Atlantic acquisition see Note 3.

Hamilton State Bancshares, Inc.

On June 29, 2018, the Company completed its acquisition of Hamilton. Upon consummation of the acquisition, Hamilton was merged with and into the Company, with Ameris as the surviving entity in the merger. At that time, Hamilton's wholly owned banking subsidiary, Hamilton State Bank, was also merged with and into the Bank. The acquisition expanded the Company's existing market presence, as Hamilton State Bank had a total of 28 full-service branches located in Atlanta, Georgia and the surrounding area as well as in Gainesville, Georgia. Under the terms of the merger agreement, Hamilton's shareholders received 0.16 shares of Ameris common stock and $0.93 in cash for each share of Hamilton voting common stock or nonvoting common stock they previously held. As a result, the Company issued 6,548,385 common shares at a fair value of $349.4 million and paid $47.8 million in cash to the former shareholders of Hamilton as merger consideration.

In accounting for the Hamilton acquisition, the Company recorded assets (exclusive of goodwill) of $1.79 billion, investment securities of $285.8 million, loans held for investment of $1.30 billion, and deposits of $1.59 billion. For additional information regarding the Hamilton acquisition see Note 3.

Costs and Requirements for Exceeding $10 Billion in Total Assets

With the completion of the Hamilton acquisition, the Bank surpassed $10 billion in total assets as of the merger's June 29, 2018 closing date. As a result, the Bank is now subject to additional regulations and oversight that can affect both our revenues and expenses.

Such regulations and oversight include becoming subject to: increased expectations with respect to risk management, internal audit, and information security; enhanced stress testing as a component of liquidity and capital planning; the examination and enforcement authority of the Consumer Financial Protection Bureau with respect to consumer and small business products and services; deposit insurance premium assessments based on an FDIC scorecard which takes into account, among other things, the Bank's CAMELS rating and results of asset-related stress testing and funding-related stress testing; and a cap on interchange transaction fees for debit cards, as required by Federal Reserve regulations, which will significantly reduce Ameris Bank's interchange revenue beginning in 2019 after a phase-in period.

We expect to expend additional resources to comply with these additional regulatory requirements. Further possible increased deposit insurance assessments may result in increased expenses. A decrease in the amount of interchange fees we receive on electronic debit interchange transactions will reduce our revenues. Finally, a failure to meet prudential risk management and capital planning standards or compliance with consumer lending laws could, among other things, limit our ability to engage in expansionary activities or make dividend payments to our shareholders.

Results of Operations for the Three Months Ended March 31, 2019 and 2018

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $39.9 million, or $0.84 per diluted share, for the quarter ended March 31, 2019, compared with $26.7 million, or $0.70 per diluted share, for the same period in 2018. The Company’s return on average assets and average shareholders’ equity were 1.42% and 10.95%, respectively, in the first quarter of 2019, compared with 1.38% and 12.73%, respectively, in the first quarter of 2018. During the first quarter of 2019, the Company incurred pre-tax merger and conversion charges of $2.1 million, pre-tax restructuring charges related to branch consolidations of $245,000, pre-tax losses on the sale of premises of $919,000 and pre-tax reduction in financial impact of hurricanes of $89,000. During the first quarter of 2018, the Company incurred pre-tax merger and conversion charges of $835,000 and pre-tax losses on the sale of premises of $583,000. Excluding these merger and conversion charges, restructuring charges, the financial impact of hurricanes and losses on the sale of premises, the Company’s net income would have been $42.6 million, or $0.90 per diluted share, for the first quarter of 2019 and $27.8 million, or $0.73 per diluted share, for the first quarter of 2018.

Below is a reconciliation of adjusted net income to net income, as discussed above.



	Three Months Ended March 31,
(in thousands, except share and per share data)	2019			2018
Net income available to common shareholders	$	39,905		$	26,660
Adjustment items:
Merger and conversion charges	2,057			835
Restructuring charge	245			—
Financial impact of hurricanes	(89		)	—
Loss on the sale of premises	919			583
Tax effect of adjustment items (Note 1)	(450		)	(298		)
After tax adjustment items	2,682			1,120
Adjusted net income	$	42,587		$	27,780

Weighted average common shares outstanding - diluted	47,456,314			38,250,122
Net income per diluted share	$	0.84		$	0.70
Adjusted net income per diluted share	$	0.90		$	0.73

Note 1: A portion of the first quarter 2019 merger and conversion charges is nondeductible for tax purposes.

Below is additional information regarding the retail banking activities, mortgage banking activities, warehouse lending activities, SBA activities and premium finance activities of the Company during the first quarter of 2019 and 2018, respectively:



	Three Months Ended March 31, 2019
(dollars in thousands)	Banking Division		Retail Mortgage Division		Warehouse Lending Division		SBA Division		Premium Finance Division		Total
Interest income	$	97,874	$	12,512	$	4,804	$	2,174	$	7,565	$	124,929
Interest expense	12,835		6,759		2,114		1,088		2,738		25,534
Net interest income	85,039		5,753		2,690		1,086		4,827		99,395
Provision for loan losses	2,058		136		—		231		983		3,408
Noninterest income	14,370		14,290		379		1,730		2		30,771
Noninterest expense
Salaries and employee benefits	27,932		8,207		161		765		1,305		38,370
Equipment and occupancy expenses	7,281		766		1		59		97		8,204
Data processing and telecommunications expenses	7,592		330		30		2		437		8,391
Other expenses	16,956		2,114		68		349		973		20,460
Total noninterest expense	59,761		11,417		260		1,175		2,812		75,425
Income before income tax expense	37,590		8,490		2,809		1,410		1,034		51,333
Income tax expense	8,775		1,613		590		296		154		11,428
Net income	$	28,815	$	6,877	$	2,219	$	1,114	$	880	$	39,905



	Three Months Ended March 31, 2018
(dollars in thousands)	Banking Division		Retail Mortgage Division		Warehouse Lending Division		SBA Division		Premium Finance Division		Total
Interest income	$	60,896	$	6,822	$	2,752	$	1,431	$	7,611	$	79,512
Interest expense	5,537		1,825		897		507		1,945		10,711
Net interest income	55,359		4,997		1,855		924		5,666		68,801
Provision for loan losses	888		217		—		537		159		1,801
Noninterest income	13,099		11,585		397		1,370		13		26,464
Noninterest expense
Salaries and employee benefits	22,068		7,742		138		740		1,401		32,089
Equipment and occupancy expenses	5,477		593		—		58		70		6,198
Data processing and telecommunications expenses	6,304		389		33		9		400		7,135
Other expenses	11,080		1,731		52		236		577		13,676
Total noninterest expense	44,929		10,455		223		1,043		2,448		59,098
Income before income tax expense	22,641		5,910		2,029		714		3,072		34,366
Income tax expense	5,242		1,244		426		150		644		7,706
Net income	$	17,399	$	4,666	$	1,603	$	564	$	2,428	$	26,660

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 three months ended March 31, 2019 and 2018. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 21% federal tax rate.



	Quarter Ended March 31,
	2019					2018
(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	$	508,891	$	3,329	2.65%	$	147,490	$	716	1.97%
Investment securities	1,225,564		9,240		3.06%	860,419		5,615		2.65%
Loans held for sale	101,521		1,152		4.60%	138,129		1,210		3.55%
Loans	5,867,037		77,322		5.34%	4,902,082		58,771		4.86%
Purchased loans	2,359,280		33,011		5.67%	842,509		11,762		5.66%
Purchased loan pools	257,661		1,933		3.04%	325,113		2,424		3.02%
Total interest-earning assets	10,319,954		125,987		4.95%	7,215,742		80,498		4.52%
Noninterest-earning assets	1,103,723					607,709
Total assets	$	11,423,677				$	7,823,451

Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Savings and interest-bearing demand deposits	$	4,630,092	$	11,233	0.98%	$	3,586,369	$	4,526	0.51%
Time deposits	2,402,439		10,451		1.76%	1,016,406		2,246		0.90%
Federal funds purchased and securities sold under agreements to repurchase	15,879		11		0.28%	20,909		9		0.17%
FHLB advances	6,257		44		2.85%	371,556		1,457		1.59%
Other borrowings	145,473		2,227		6.21%	75,553		1,134		6.09%
Subordinated deferrable interest debentures	89,343		1,568		7.12%	85,701		1,339		6.34%
Total interest-bearing liabilities	7,289,483		25,534		1.42%	5,156,494		10,711		0.84%
Demand deposits	2,545,043					1,780,738
Other liabilities	110,689					36,873
Shareholders’ equity	1,478,462					849,346
Total liabilities and shareholders’ equity	$	11,423,677				$	7,823,451
Interest rate spread					3.53%					3.68%
Net interest income			$	100,453				$	69,787
Net interest margin					3.95%					3.92%

On a tax-equivalent basis, net interest income for the first quarter of 2019 was $100.5 million, an increase of $30.7 million, or 43.9%, compared with $69.8 million reported in the same quarter in 2018. The higher net interest income is a result of growth in average interest earning assets which increased $3.10 billion, or 43.0%, from $7.22 billion in the first quarter of 2018 to $10.32 billion for the first quarter of 2019. This growth in interest earning assets resulted primarily from the Atlantic acquisition and the Hamilton acquisition both occurring in the second quarter of 2018, as well as strong growth in average legacy loans which increased $965.0 million, or 19.7%, to $5.87 billion in the first quarter 2019 from $4.90 billion in the same period of 2018. The Company’s net interest margin during the first quarter of 2019 was 3.95%, up three basis points from 3.92% reported in the first quarter of 2018.

Total interest income, on a tax-equivalent basis, increased to $126.0 million during the first quarter of 2019, compared with $80.5 million in the same quarter of 2018. Yields on earning assets increased to 4.95% during the first quarter of 2019, compared with 4.52% reported in the first quarter of 2018. During the first quarter of 2019, loans comprised 83.2% of average earning assets, compared with 86.0% in the same quarter of 2018. Yields on legacy loans increased to 5.34% in the first quarter of 2019, compared with 4.86% in the same period of 2018. The yield on purchased loans increased slightly from 5.66% in the first quarter of 2018 to 5.67% during the first quarter of 2019. Accretion income for the first quarter of 2019 was $2.9 million, compared with $1.4 million in the first quarter of 2018. Excluding the effect of accretion on purchased loans, the yield on purchased loans was 5.18% for the first quarter of 2019, compared with 4.97% in the same period of 2018. Yields on purchased loan pools increased from

3.02% in the first quarter of 2018 to 3.04% in the same period in 2019. Management anticipates improving economic conditions and increased loan demand will provide consistent interest income.

The yield on total interest-bearing liabilities increased from 0.84% in the first quarter of 2018 to 1.42% in the first quarter of 2019. Total funding costs, inclusive of noninterest-bearing demand deposits, increased to 1.05% in the first quarter of 2019, compared with 0.63% during the first quarter of 2018. Deposit costs increased from 0.43% in the first quarter of 2018 to 0.92% in the first quarter of 2019. Non-deposit funding costs increased from 2.89% in the first quarter of 2018 to 6.08% in the first quarter of 2019. The increase in non-deposit funding costs was driven primarily by a shift in mix of interest-bearing liabilities to brokered deposits and other borrowings from short-term FHLB advances. Funding from non-CD deposits averaged 74.9% of total deposits in the first quarter of 2019, compared with 84.1% during the first quarter of 2018. Average balances of interest bearing deposits and their respective costs for the first quarter of 2019 and 2018 are shown below:



	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
(dollars in thousands)	Average Balance		Average Cost	Average Balance		Average Cost
NOW	$	1,553,988	0.55%	$	1,337,718	0.29%
MMDA	2,677,015		1.37%	1,970,571		0.73%
Savings	399,089		0.08%	278,080		0.07%
Retail CDs < $100,000	767,405		1.22%	422,771		0.64%
Retail CDs > $100,000	1,124,733		1.81%	593,635		1.08%
Brokered CDs	510,301		2.48%	—		—%
Interest-bearing deposits	$	7,032,531	1.25%	$	4,602,775	0.60%

Provision for Loan Losses

The Company’s provision for loan losses during the first quarter of 2019 amounted to $3.4 million, compared with $1.8 million in the first quarter of 2018. At March 31, 2019, classified loans still accruing decreased to $78.2 million, compared with $81.9 million at December 31, 2018. Non-performing assets as a percentage of total assets decreased from 0.55% at December 31, 2018 to 0.54% at March 31, 2019. Net charge-offs on legacy loans during the first quarter of 2019 were approximately $3.9 million, or 0.27% of average legacy loans on an annualized basis, compared with approximately $1.7 million, or 0.14%, in the first quarter of 2018. The increase in net charge-offs on legacy loans during the first quarter of 2019 was primarily attributable to an increase in charge-offs on consumer installment loans and a $1.2 million commercial real estate loan which was fully charged off during the quarter which previously was specifically reserved for at December 31, 2018. The Company’s allowance for loan losses allocated to legacy loans at March 31, 2019 was $26.2 million, or 0.45% of legacy loans, compared with $26.2 million, or 0.46% of legacy loans, at December 31, 2018. The Company’s total allowance for loan losses at March 31, 2019 was $28.7 million, or 0.34% of total loans, compared with $28.8 million, or 0.34% of total loans, at December 31, 2018.

Noninterest Income

Total noninterest income for the first quarter of 2019 was $30.8 million, an increase of $4.3 million, or 16.3%, from the $26.5 million reported in the first quarter of 2018. Service charges on deposit accounts in the first quarter of 2019 were $11.6 million, increasing by $1.4 million, or 13.9%, compared with $10.2 million in the first quarter of 2018. This increase in service charges on deposit accounts is due primarily to an increase in the number of deposit accounts resulting from the Atlantic and Hamilton acquisitions in the second quarter of 2018. Income from mortgage-related activities was $13.8 million in the first quarter of 2019 consistent with $11.9 million in the first quarter of 2018. Total production in the first quarter of 2019 amounted to $356.0 million, compared with $356.1 million in the same quarter of 2018, while spread (gain on sale) increased to 3.18% in the current quarter compared with 2.62% in the same quarter of 2018. The retail mortgage open pipeline finished the first quarter of 2019 at $200.9 million, compared with $119.2 million at December 31, 2018 and $153.2 million at the end of the first quarter of 2018. Other service charges, commissions and fees increased $49,000, or 6.8%, to $768,000 during the first quarter of 2019, compared with $719,000 during the first quarter of 2018 due primarily to increased ATM fees. Other noninterest income increased $883,000, or 24.7%, to $4.5 million for the first quarter of 2019, compared with $3.6 million during the first quarter of 2018. The increase in other noninterest income was primarily attributable to increases in loan servicing income, bank owned life insurance income and gain on sale of SBA loans.

Noninterest Expense

Total noninterest expenses for the first quarter of 2019 increased $16.3 million, or 27.6%, to $75.4 million, compared with $59.1 million in the same quarter 2018. Salaries and employee benefits increased $6.3 million, or 19.6%, from $32.1 million in the first quarter of 2018 to $38.4 million in the first quarter of 2019 due primarily to an increase of 309, or 21.2%, full-time equivalent employees from 1,457 at March 31, 2018 to 1,766 at March 31, 2019, resulting from staff added as a result of the Atlantic and Hamilton acquisitions which occurred in the second quarter of 2018. Additionally, $245,000 in salaries and employee benefits expense was recorded during the first quarter of 2019 related to restructuring charges related to branch consolidations. Occupancy and equipment expenses increased $2.0 million, or 32.4%, to $8.2 million for the first quarter of 2019, compared with $6.2 million in the first quarter of 2018 due primarily to an increase of 17 branch locations from 97 at March 31, 2018 to 114 at March 31, 2019, resulting from branch locations added as a result of the Atlantic and Hamilton acquisitions partially offset by branches closed during the first quarter of 2019 in connection with announced branch consolidations. Data processing and telecommunications expense increased $1.3 million, or 17.6%, to $8.4 million in the first quarter of 2019, compared with $7.1 million in the first quarter of 2018, due to an increase in core banking system charges related to an increase in the number of accounts being processed by our core banking system as a result of the Atlantic and Hamilton acquisitions. Credit resolution-related expenses increased $362,000, or 65.9%, from $549,000 in the first quarter of 2018 to $911,000 in the first quarter of 2019. Advertising and marketing expense was $1.7 million in the first quarter of 2019, compared with $1.2 million in the first quarter of 2018. Amortization of intangible assets increased $2.2 million, or 235.3%, from $934,000 in the first quarter of 2018 to $3.1 million in the first quarter of 2019 due to additional amortization of intangible assets recorded as part of the USPF, Atlantic and Hamilton acquisitions. Merger and conversion charges were $2.1 million in the first quarter of 2019, compared with $835,000 in the same quarter of 2018. Other noninterest expenses increased $2.5 million, or 24.6%, from $10.1 million in the first quarter of 2018 to $12.6 million in the first quarter of 2019, due primarily to an increase in volume in certain areas related to our acquisitions of Hamilton and Atlantic and increases in variable expenses tied to production in our lines of business.

Income Taxes

Income tax expense is influenced by the statutory rate, the amount of taxable income, the amount of tax-exempt income and the amount of non-deductible expenses. For the first quarter of 2019, the Company reported income tax expense of $11.4 million, compared with $7.7 million in the same period of 2018. The Company’s effective tax rate for the three months ending March 31, 2019 and 2018 was 22.3% and 22.4%, respectively.

Financial Condition as of March 31, 2019

Securities

Debt securities with readily determinable fair values are classified as available for sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income, net of the related deferred tax effect. Restricted equity securities, are classified as other investment securities and are carried at cost and are periodically evaluated for impairment based on ultimate recovery of par value or cost basis.

The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the life of the securities. Realized gains and losses, determined on the basis of the cost of specific securities sold, are included in earnings on the trade date. Declines in the fair value of securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses.

In determining whether other-than-temporary impairment losses exist, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Substantially all of the unrealized losses on debt securities are related to changes in interest rates and do not affect the expected cash flows of the issuer or underlying collateral. All unrealized losses are considered temporary because each security carries an acceptable investment grade and the Company does not intend to sell these investment securities at an unrealized loss position at March 31, 2019, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at March 31, 2019, these investments are not considered impaired on an other-than temporary basis.

The following table illustrates certain information regarding the Company’s investment portfolio with respect to yields, sensitivities and expected cash flows over the next twelve months assuming constant prepayments and maturities.



(dollars in thousands)	Amortized Cost		Fair Value		Book Yield	Modified Duration	Estimated Cash Flows 12 Months
March 31, 2019
State, county and municipal securities	$	106,468	$	107,740	3.90%	3.60	$	18,639
Corporate debt securities	56,901		$	57,152	5.15%	5.34	500
Mortgage-backed securities	1,072,783		$	1,069,543	2.84%	3.67	176,008
Total debt securities	$	1,236,152	$	1,234,435	3.04%	3.74	$	195,147

December 31, 2018
State, county and municipal securities	$	149,670	$	150,733	3.80%	3.92	$	21,576
Corporate debt securities	67,123		67,314		4.75%	4.94	500
Mortgage-backed securities	982,183		974,376		2.84%	3.96	144,876
Total debt securities	$	1,198,976	$	1,192,423	3.07%	4.01	$	166,952

Loans and Allowance for Loan Losses

At March 31, 2019, gross loans outstanding (including purchased loans, purchased loan pools, and loans held for sale) were $8.59 billion, a decrease of $28.8 million, or 0.3%, from $8.62 billion reported at December 31, 2018. Loans held for sale increased from $111.3 million at December 31, 2018 to $112.1 million at March 31, 2019. Legacy loans (excluding purchased loans and purchased loan pools) increased $95.9 million, or 1.7%, from $5.66 billion at December 31, 2018 to $5.76 billion at March 31, 2019, driven primarily by growth in the commercial real estate and commercial, financial and agricultural loan categories. Purchased loans decreased $116.6 million, or 4.5%, from $2.59 billion at December 31, 2018 to $2.47 billion at March 31, 2019, due to paydowns of $116.8 million, charge-offs of $184,000 and transfers to OREO of $2.5 million, partially offset by accretion of $2.9 million. Purchased loan pools decreased $8.9 million, or 3.4%, from $262.6 million at December 31, 2018 to $253.7 million at March 31, 2019 due primarily to payments on the portfolio of $8.6 million and premium amortization of $348,000 during the first three months of 2019.

The Company regularly monitors the composition of the loan portfolio to evaluate the adequacy of the allowance for loan losses in light of the impact that changes in the economic environment may have on the loan portfolio. The Company focuses on the following loan categories: (1) commercial, financial and agricultural; (2) construction and development related real estate; (3) commercial and farmland real estate; (4) residential real estate; and (5) consumer. The Company’s management has strategically located its branches in select markets in Georgia, North Florida, Southeast Alabama 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 allowance for loan losses. Loans classified as “substandard” are loans which are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses and/or questionable collateral values. Loans classified as “doubtful” are those loans that have characteristics similar to substandard loans but have an increased risk of loss. Loans classified as “loss” are those loans which are considered uncollectible and are in the process of being charged off.

The allowance for loan losses is a reserve established through charges to earnings in the form of a provision for loan losses. The provision for loan losses is based on management’s evaluation of the size and composition of the loan portfolio, the level of non-performing and past-due loans, historical trends of charged off loans and recoveries, prevailing economic conditions and other factors management deems appropriate. The Company’s management has established an allowance for loan losses which it believes is adequate for the probable incurred losses in the loan portfolio. Based on a credit evaluation of the loan portfolio, management presents a monthly review of the allowance for loan losses to the Company’s Board of Directors, which primarily focuses on risk by evaluating individual loans in certain risk categories. These categories have also been established by management and take the form of loan grades. By grading the loan portfolio in this manner the Company’s management is able to effectively evaluate the portfolio by risk, which management believes is the most effective way to analyze the loan portfolio and thus analyze the adequacy of the allowance for loan losses.

The allowance for loan losses is established by examining (1) the large classified loans, nonaccrual loans and loans considered impaired and evaluating them individually to determine the specific reserve allocation and (2) the remainder of the loan portfolio to allocate a portion of the allowance based on past loss experience and the economic conditions for the particular loan category. The Company also considers other factors such as changes in lending policies and procedures; changes in national, regional and/or local economic and business conditions; changes in the nature and volume of the loan portfolio; changes in the experience, ability and depth of either the market president or lending staff; changes in the volume and severity of past-due and classified loans; changes in the quality of the Company’s corporate loan review system; and other factors management deems appropriate.

At the end of the first quarter of 2019, the allowance for loan losses allocated to legacy loans totaled $26.2 million, or 0.45% of legacy loans, compared with $26.2 million, or 0.46% of legacy loans, at December 31, 2018. The allowance for loan losses as a percentage of legacy loans was approximately flat from December 31, 2018 to March 31, 2019 as a decrease in the allowance for loan losses allocated to loans individually evaluated for impairment was offset by an increase in the allowance for loan losses allocated to loans collectively for impairment due to legacy loan growth. Our legacy nonaccrual loans decreased from $18.0 million at December 31, 2018 to $17.6 million at March 31, 2019. For the first three months of 2019, our legacy net charge off ratio as a percentage of average legacy loans increased to 0.27%, compared with 0.14% for the first three months of 2018. The total provision for loan losses for the first three months of 2019 was $3.4 million, increasing from $1.8 million recorded for the first three months of 2018. Our ratio of total nonperforming assets to total assets decreased from 0.55% at December 31, 2018 to 0.54% at March 31, 2019.

The balance of the allowance for loan losses allocated to all loans collectively evaluated for impairment increased 3.5%, or $828,000, during the first three months of 2019, while the balance of all loans collectively evaluated for impairment decreased 0.3%, or $21.3 million, during the same period. The decrease in the balance of all loans collectively evaluated for impairment is primarily attributable to paydowns on purchased loans, partially offset by growth in legacy loans. As a percentage of total loans collectively evaluated for impairment, the allowance allocated to those loans increased from 0.28% at December 31, 2018 to 0.30% at March 31, 2019.

The balance of the allowance for loan losses allocated to legacy loans collectively evaluated for impairment increased 3.7%, or $864,000, during the first three months of 2019, while the balance of legacy loans collectively evaluated for impairment increased 1.7%, or $95.8 million, during the same period. As a percentage of legacy loans collectively evaluated for impairment, the allowance allocated to those loans increased one basis point from 0.41% at December 31, 2018 to 0.42% at March 31, 2019 due to the consistency in the mix of loan and collateral types and the overall credit quality of the loan portfolio.

For the allowance allocated to loans collectively evaluated expressed as a percentage of loans evaluated collectively for impairment, the largest change for the first three months of 2019 was noted in the legacy consumer installment loan category, which increased from 0.83% at December 31, 2018 to 0.90% at March 31, 2019 due to increased net charge-offs for the category. We consider a four year loss rate on all loan categories. We adjust the qualitative factors to account for the inherent risks in the portfolio that are not captured in the historical loss rates, such as volatile commodity prices for agriculture products, weather-related risks (droughts and hurricanes), growth rates of certain loan types and other factors management deems appropriate.

The balance of the allowance for loan losses allocated to loans individually evaluated for impairment decreased 19.9%, or $1.0 million, during the first three months of 2019, while the balance of loans individually evaluated for impairment decreased 5.0%, or $2.7 million, during the same period. The decrease in loan balances individually evaluated for impairment was primarily attributable to a decrease of $3.1 million in the purchased loans category. The decrease in the allowance for loan losses allocated to loans individually evaluated for impairment from December 31, 2018 to March 31, 2019 was primarily related to one loan which was specifically reserved for at December 31, 2018 and fully charged off during the quarter.

The following tables present an analysis of the allowance for loan losses as of and for the three months ended March 31, 2019 and 2018:



	Three Months Ended March 31,
(dollars in thousands)	2019		2018
Balance of allowance for loan losses at beginning of period	$	28,819	$	25,791
Provision charged to operating expense	3,408		1,801
Charge-offs:
Commercial, financial and agricultural	2,004		1,449
Real estate – construction and development	25		—
Real estate – commercial and farmland	1,253		142
Real estate – residential	20		198
Consumer installment	1,893		962
Purchased loans	184		121
Total charge-offs	5,379		2,872
Recoveries:
Commercial, financial and agricultural	1,065		656
Real estate – construction and development	1		114
Real estate – commercial and farmland	4		24
Real estate – residential	104		182
Consumer installment	164		67
Purchased loans	473		437
Total recoveries	1,811		1,480
Net charge-offs	3,568		1,392
Balance of allowance for loan losses at end of period	$	28,659	$	26,200



	As of and for the Three Months Ended March 31, 2019
(dollars in thousands)	Legacy Loans			Purchased Loans			Purchased Loan Pools			Total
Allowance for loan losses at end of period	$	26,166		$	1,796		$	697		$	28,659
Net charge-offs (recoveries) for the period	3,857			(289		)	—			3,568
Loan balances:
End of period	5,756,358			2,472,271			253,710			8,482,339
Average for the period	5,867,037			2,359,280			257,661			8,483,978
Net charge-offs as a percentage of average loans	0.27		%	(0.05		)%	0.00		%	0.17		%
Allowance for loan losses as a percentage of end of period loans	0.45		%	0.07		%	0.27		%	0.34		%



	As of and for the Three Months Ended March 31, 2018
(dollars in thousands)	Legacy Loans			Purchased Loans			Purchased Loan Pools			Total
Allowance for loan losses at end of period	$	22,384		$	2,822		$	994		$	26,200
Net charge-offs (recoveries) for the period	1,708			(316		)	—			1,392
Loan balances:
End of period	5,051,986			818,587			319,598			6,190,171
Average for the period	4,902,082			842,509			325,113			6,069,704
Net charge-offs as a percentage of average loans	0.14		%	(0.15		)%	0.00		%	0.09		%
Allowance for loan losses as a percentage of end of period loans	0.44		%	0.34		%	0.31		%	0.42		%

Loans Excluding Purchased Loans



(dollars in thousands)	March 31, 2019		December 31, 2018
Commercial, financial and agricultural	$	1,382,907	$	1,316,359
Real estate – construction and development	676,563		671,198
Real estate – commercial and farmland	1,894,937		1,814,529
Real estate – residential	1,365,482		1,403,000
Consumer installment	436,469		455,371
	$	5,756,358	$	5,660,457

The following table summarizes the various loan types comprising the "Commercial, financial and agricultural" loan category displayed in the preceding table.



(dollars in thousands)	March 31, 2019		December 31, 2018
Municipal loans	$	509,464	$	510,600
Premium finance loans	487,980		410,381
Other commercial, financial and agricultural loans	385,463		395,378
	$	1,382,907	$	1,316,359

Purchased Assets

Loans that were acquired in transactions, including those that are covered by the loss-sharing agreements with the FDIC (“purchased loans”), totaled $2.47 billion and $2.59 billion at March 31, 2019 and December 31, 2018, respectively. The decrease in purchased loans of $116.6 million, or 4.5%, resulted primarily from paydowns during the quarter. OREO that was acquired in transactions, including OREO that is covered by the loss-sharing agreements with the FDIC, totaled $10.9 million and $9.5 million, at March 31, 2019 and December 31, 2018, respectively.

The Bank initially records purchased loans at fair value, taking into consideration certain credit quality risk and interest rate risk. The Company believes its estimation of credit risk and its adjustments to the carrying balances of the acquired loans are adequate. If the Company determines that a loan or group of loans has deteriorated from its initial assessment of fair value, additional provision for loan loss expense will be recorded for the impairment in value. If the Company determines that a loan or group of loans has improved from its initial assessment of fair value, then the increase in cash flows over those expected at the acquisition date will result in the reversal of provision for loan loss expense to the extent of prior provisions or will be recognized as interest income prospectively if no provisions have been made or have been fully reversed.

Purchased loans are shown below according to loan type as of the end of the periods shown:



(dollars in thousands)	March 31, 2019		December 31, 2018
Commercial, financial and agricultural	$	327,972	$	372,686
Real estate – construction and development	239,413		227,900
Real estate – commercial and farmland	1,280,515		1,337,859
Real estate – residential	597,735		623,199
Consumer installment	26,636		27,188
	$	2,472,271	$	2,588,832

Purchased Loan Pools

Purchased loan pools are defined as groups of residential mortgage loans that were not acquired in bank acquisitions or FDIC-assisted transactions. As of March 31, 2019, purchased loan pools totaled $253.7 million and consisted of whole-loan residential mortgages on properties outside the Company’s markets, with principal balances totaling $252.0 million and $1.7 million of remaining purchase premium paid at acquisition. As of December 31, 2018, purchased loan pools totaled $262.6 million and consisted of whole-loan, adjustable rate residential mortgages on properties outside the Company’s markets, with principal balances totaling $260.5 million and $2.1 million of remaining purchase premium paid at acquisition. The Company has allocated approximately $697,000 and $732,000 of the allowance for loan losses to the purchased loan pools at March 31, 2019 and December 31, 2018, respectively.

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 impaired loans on a quarterly basis and recognizes losses when impairment is identified. A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against current income.

Nonaccrual loans, excluding purchased loans, totaled $17.6 million at March 31, 2019, a decrease of $319,000, or 1.8%, from $18.0 million reported at December 31, 2018. Nonaccrual purchased loans totaled $23.8 million at March 31, 2019, a decrease of $261,000, or 1.1%, compared with $24.1 million at December 31, 2018. Nonaccrual loans within purchased loan pools totaled $400,000 at March 31, 2019, compared with no such loans at December 31, 2018. Accruing loans delinquent 90 days or more, excluding purchased loans, totaled $3.7 million at March 31, 2019, a decrease of $546,000, or 12.9%, compared with $4.2 million at December 31, 2018. At March 31, 2019, OREO, excluding purchased OREO, totaled $6.0 million, a decrease of $1.2 million, or 16.7%, compared with $7.2 million at December 31, 2018. Purchased OREO totaled $10.9 million at March 31, 2019, an increase of $1.3 million, or 13.9%, compared with $9.5 million at December 31, 2018. Management regularly assesses the valuation of OREO through periodic reappraisal and through inquiries received in the marketing process. At the end of the first quarter of 2019, total non-performing assets as a percent of total assets decreased to 0.54% compared with 0.55% at December 31, 2018.

Non-performing assets at March 31, 2019 and December 31, 2018 were as follows:



(dollars in thousands)	March 31, 2019		December 31, 2018
Nonaccrual loans, excluding purchased loans	$	17,633	$	17,952
Nonaccrual purchased loans	23,846		24,107
Nonaccrual purchased loan pools	400		—
Accruing loans delinquent 90 days or more, excluding purchased loans	3,676		4,222
Accruing purchased loans delinquent 90 days or more	—		—
Foreclosed assets, excluding purchased assets	6,014		7,218
Purchased other real estate owned	10,857		9,535
Total non-performing assets	$	62,426	$	63,034

Troubled Debt Restructurings

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

As of March 31, 2019 and December 31, 2018, the Company had a balance of $12.9 million and $11.1 million, respectively, in troubled debt restructurings, excluding purchased loans. The following table presents the amount of troubled debt restructurings by loan class, excluding purchased loans, classified separately as accrual and nonaccrual at March 31, 2019 and December 31, 2018:



March 31, 2019	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	3	$	116	14	$	138
Real estate – construction and development	4	142		1	2
Real estate – commercial and farmland	13	2,954		4	450
Real estate – residential	78	8,240		19	832
Consumer installment	5	11		22	63
Total	103	$	11,463	60	$	1,485



December 31, 2018	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	5	$	256	14	$	138
Real estate – construction and development	5	145		1	2
Real estate – commercial and farmland	12	2,863		3	426
Real estate – residential	71	6,043		20	1,119
Consumer installment	6	16		24	69
Total	99	$	9,323	62	$	1,754

The following table presents the amount of troubled debt restructurings by loan class, excluding purchased loans, classified separately as those currently paying under restructured terms and those that have defaulted (defined as 30 days past due) under restructured terms at March 31, 2019 and December 31, 2018:



March 31, 2019	Loans Currently Paying Under Restructured Terms			Loans that have Defaulted Under Restructured Terms
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	9	$	145	8	$	109
Real estate – construction and development	5	143		—	—
Real estate – commercial and farmland	16	3,158		1	246
Real estate – residential	75	7,510		22	1,562
Consumer installment	18	42		9	33
Total	123	$	10,998	40	$	1,950



December 31, 2018	Loans Currently Paying Under Restructured Terms			Loans that have Defaulted Under Restructured Terms
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	10	$	282	9	$	112
Real estate – construction and development	5	147		1	—
Real estate – commercial and farmland	14	3,043		1	246
Real estate – residential	65	5,756		26	1,406
Consumer installment	18	36		12	49
Total	112	$	9,264	49	$	1,813

The following table presents the amount of troubled debt restructurings, excluding purchased loans, by types of concessions made, classified separately as accrual and nonaccrual at March 31, 2019 and December 31, 2018:



March 31, 2019	Accruing Loans			Non-Accruing Loans
Type of Concession	#	Balance (in thousands)		#	Balance (in thousands)
Forgiveness of interest	—	$	—	1	$	55
Forbearance of interest	9	1,339		7	617
Forgiveness of principal	1	681		—	—
Forbearance of principal	11	2,339		4	70
Rate reduction only	12	1,180		1	55
Rate reduction, forbearance of interest	28	2,406		11	318
Rate reduction, forbearance of principal	13	1,357		30	170
Rate reduction, forgiveness of interest	29	2,161		5	199
Rate reduction, forgiveness of principal	—	—		1	1
Total	103	$	11,463	60	$	1,485



December 31, 2018	Accruing Loans			Non-Accruing Loans
Type of Concession	#	Balance (in thousands)		#	Balance (in thousands)
Forgiveness of interest	—	$	—	1	$	55
Forbearance of interest	9	1,361		5	509
Forgiveness of principal	1	686		—	—
Forbearance of principal	6	360		4	75
Rate reduction only	11	1,155		1	56
Rate reduction, forbearance of interest	27	2,149		13	618
Rate reduction, forbearance of principal	15	1,384		32	175
Rate reduction, forgiveness of interest	30	2,228		5	264
Rate reduction, forgiveness of principal	—	—		1	2
Total	99	$	9,323	62	$	1,754

The following table presents the amount of troubled debt restructurings, excluding purchased loans, by collateral types, classified separately as accrual and nonaccrual at March 31, 2019 and December 31, 2018:



March 31, 2019	Accruing Loans			Non-Accruing Loans
Collateral Type	#	Balance (in thousands)		#	Balance (in thousands)
Warehouse	4	$	535	2	$	165
Raw land	6	431		1	2
Hotel and motel	1	252		1	246
Office	1	159		—	—
Retail, including strip centers	6	1,956		—	—
1-4 family residential	78	8,032		20	871
Automobile/equipment/CD	7	98		34	186
Livestock	—	—		1	14
Unsecured	—	—		1	1
Total	103	$	11,463	60	$	1,485



December 31, 2018	Accruing Loans			Non-Accruing Loans
Collateral Type	#	Balance (in thousands)		#	Balance (in thousands)
Warehouse	5	$	544	1	$	137
Raw land	7	435		1	2
Hotel and motel	1	260		1	246
Office	1	161		—	—
Retail, including strip centers	6	1,980		—	—
1-4 family residential	71	5,835		21	1,161
Automobile/equipment/CD	8	108		36	188
Livestock	—	—		1	18
Unsecured	—	—		1	2
Total	99	$	9,323	62	$	1,754

As of March 31, 2019 and December 31, 2018, the Company had a balance of $22.3 million and $22.2 million, respectively, in troubled debt restructurings included in purchased loans. The following table presents the amount of troubled debt restructurings by loan class of purchased loans, classified separately as accrual and nonaccrual at March 31, 2019 and December 31, 2018:



March 31, 2019	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	1	$	31	3	$	29
Real estate – construction and development	4	1,011		4	268
Real estate – commercial and farmland	12	6,104		7	1,577
Real estate – residential	119	12,297		21	917
Consumer installment	—	—		7	50
Total	136	$	19,443	42	$	2,841



December 31, 2018	Accruing Loans			Non-Accruing Loans
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	1	$	31	3	$	32
Real estate – construction and development	4	1,015		5	293
Real estate – commercial and farmland	12	6,162		7	1,685
Real estate – residential	115	11,532		24	1,424
Consumer installment	—	—		4	17
Total	132	$	18,740	43	$	3,451

The following table presents the amount of troubled debt restructurings by loan class of purchased loans, classified separately as those currently paying under restructured terms and those that have defaulted (defined as 30 days past due) under restructured terms at March 31, 2019 and December 31, 2018:



March 31, 2019	Loans Currently Paying Under Restructured Terms			Loans that have Defaulted Under Restructured Terms
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	3	$	58	1	$	3
Real estate – construction and development	7	1,277		1	2
Real estate – commercial and farmland	16	7,252		3	428
Real estate – residential	113	10,723		27	2,491
Consumer installment	4	19		3	31
Total	143	$	19,329	35	$	2,955



December 31, 2018	Loans Currently Paying Under Restructured Terms			Loans that have Defaulted Under Restructured Terms
Loan Class	#	Balance (in thousands)		#	Balance (in thousands)
Commercial, financial and agricultural	4	$	63	—	$	—
Real estate – construction and development	8	1,305		1	3
Real estate – commercial and farmland	17	7,576		2	271
Real estate – residential	106	10,040		33	2,916
Consumer installment	3	14		1	3
Total	138	$	18,998	37	$	3,193

The following table presents the amount of troubled debt restructurings included in purchased loans, by types of concessions made, classified separately as accrual and nonaccrual at March 31, 2019 and December 31, 2018:



March 31, 2019	Accruing Loans			Non-Accruing Loans
Type of Concession	#	Balance (in thousands)		#	Balance (in thousands)
Forbearance of interest	5	$	457	9	$	1,398
Forbearance of principal	6	2,329		4	233
Forbearance of principal, extended amortization	—	—		1	250
Rate reduction only	70	10,746		6	236
Rate reduction, forbearance of interest	24	2,293		13	332
Rate reduction, forbearance of principal	9	1,740		7	263
Rate reduction, forgiveness of interest	22	1,878		2	129
Total	136	$	19,443	42	$	2,841



December 31, 2018	Accruing Loans			Non-Accruing Loans
Type of Concession	#	Balance (in thousands)		#	Balance (in thousands)
Forbearance of interest	5	$	224	10	$	1,751
Forbearance of principal	6	2,368		3	226
Forbearance of principal, extended amortization	—	—		1	258
Rate reduction only	73	10,911		6	285
Rate reduction, forbearance of interest	24	2,304		14	356
Rate reduction, forbearance of principal	8	1,635		6	368
Rate reduction, forgiveness of interest	16	1,298		3	207
Total	132	$	18,740	43	$	3,451

The following table presents the amount of troubled debt restructurings included in purchased loans, by collateral types, classified separately as accrual and nonaccrual at March 31, 2019 and December 31, 2018:



March 31, 2019	Accruing Loans			Non-Accruing Loans
Collateral Type	#	Balance (in thousands)		#	Balance (in thousands)
Warehouse	2	$	354	—	$	—
Raw land	2	870		5	653
Hotel and motel	1	144		—	—
Office	2	410		2	445
Retail, including strip centers	5	3,848		—	—
1-4 family residential	122	12,600		23	1,453
Church	1	1,186		1	196
Automobile/equipment/CD	1	31		11	94
Total	136	$	19,443	42	$	2,841



December 31, 2018	Accruing Loans			Non-Accruing Loans
Collateral Type	#	Balance (in thousands)		#	Balance (in thousands)
Warehouse	2	$	356	—	$	—
Raw land	2	873		6	718
Hotel and motel	1	145		—	—
Office	2	419		2	457
Retail, including strip centers	5	3,882		—	—
1-4 family residential	118	11,837		26	2,009
Church	1	1,197		1	201
Automobile/equipment/CD	1	31		8	65
Total	132	$	18,740	43	$	3,450

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 1-4 family residential construction), multi-family property and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property, excluding owner occupied properties (loans for which 50% or more of the source of repayment is derived from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property) or the proceeds of the sale, refinancing or permanent financing of the property. Loans for owner occupied CRE are generally excluded from the CRE guidance.

The CRE guidance is applicable when either:


(1)	total loans for construction, land development, and other land, net of owner occupied loans, represent 100% or more of a bank’s total risk-based capital; or


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

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

As of March 31, 2019, the Company exhibited a concentration in the CRE loan category based on Federal Reserve Call codes. The primary risks of CRE lending are:


(1)	within CRE loans, construction and development loans are somewhat dependent upon continued strength in demand for residential real estate, which is reliant on favorable real estate mortgage rates and changing population demographics;


(2)	on average, CRE loan sizes are generally larger than non-CRE loan types; and


(3)	certain construction and development loans may be less predictable and more difficult to evaluate and monitor.

The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of March 31, 2019 and December 31, 2018. The loan categories and concentrations below are based on Federal Reserve Call codes and include purchased loans:



	March 31, 2019			December 31, 2018
(dollars in thousands)	Balance		% of Total Loans	Balance		% of Total Loans
Construction and development loans	$	915,976	11%	$	899,097	11%
Multi-family loans	288,583		3%	276,528		3%
Nonfarm non-residential loans (excluding owner occupied)	1,720,553		20%	1,694,267		20%
Total CRE Loans (excluding owner occupied)	2,925,112		34%	2,869,892		34%
All other loan types	5,557,227		66%	5,642,022		66%
Total Loans	$	8,482,339	100%	$	8,511,914	100%

The following table outlines the percentage of construction and development loans and total CRE loans, net of owner occupied loans, to the Bank’s total risk-based capital, and the Company’s internal concentration limits as of March 31, 2019 and December 31, 2018:



	Internal Limit	Actual
	Internal Limit	March 31, 2019	December 31, 2018
Construction and development loans	100%	77%	78%
Total CRE loans (excluding owner occupied)	300%	246%	249%

Short-Term Investments

The Company’s short-term investments are comprised of federal funds sold and interest-bearing deposits in banks. At March 31, 2019, the Company’s short-term investments were $712.2 million, compared with $507.5 million at December 31, 2018. At March 31, 2019, the Company had $40.0 million in federal funds sold and $672.2 million was in interest-bearing deposit balances at correspondent banks and the Federal Reserve Bank of Atlanta.

Derivative Instruments and Hedging Activities

The Company has a cash flow hedge that matures September 15, 2020 with a notional amount of $37.1 million at March 31, 2019 and December 31, 2018 for the purpose of converting the variable rate on certain junior subordinated debentures to a fixed rate of 4.11%. The fair value of this instrument was a liability of $31,000 at March 31, 2019 and an asset of $102,000 at December 31, 2018.

The Company also has forward contracts and IRLCs to hedge changes in the value of the mortgage inventory due to changes in market interest rates. The fair value of these instruments amounted to an asset of $5.1 million and $2.5 million at March 31, 2019 and December 31, 2018, respectively, and a liability of $1.3 million at both March 31, 2019 and December 31, 2018.

No material hedge ineffectiveness from cash flow was recognized in the statement of operations. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

Capital

Common Stock Repurchase Program

Hamilton Acquisition

For additional information regarding the Hamilton acquisition, see Note 3.

Atlantic Acquisition

For additional information regarding the Atlantic acquisition, see Note 3.

USPF Acquisition

On January 3, 2018, in exchange for 25.01% of the outstanding shares of common stock of USPF, the Company issued 114,285 unregistered shares of its common stock and $12.5 million in cash to a selling shareholder of USPF. The issuance of the 114,285 common shares, valued at $48.55 per share at the time of issuance, resulted in an increase in shareholders’ equity of $5.5 million.

For additional information regarding the USPF acquisition, see Note 3.

Capital Management

Capital management consists of providing equity to support both current and anticipated future operations. The Company is subject to capital adequacy requirements imposed by the Federal Reserve Board (the “FRB”) and the Georgia Department of Banking and Finance (the "GDBF"), and the Bank is subject to capital adequacy requirements imposed by the FDIC and the GDBF.

The FRB, the FDIC and the GDBF have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. These standards define and establish minimum capital requirements in relation to assets and off-balance sheet exposure, adjusted for credit risk. The risk-based capital standards currently in effect are designed to make regulatory capital

requirements more sensitive to differences in risk profiles among bank holding companies and banks and to account for off-balance sheet exposure.

In July 2013, the Federal Reserve published final rules for the adoption of the Basel III regulatory capital framework (the "Basel III Capital Rules"). The Basel III Capital Rules defined a new capital measure called "Common Equity Tier 1" ("CET1"), established that Tier 1 capital consist of Common Equity Tier 1 and "Additional Tier 1 Capital" instruments meeting specified requirements, defined Common Equity Tier 1, established a capital conservation buffer and expanded the scope of the adjustments as compared with existing regulations. The capital conservation buffer is being increased by 0.625% per year until reaching 2.50% by 2019. The capital conservation buffer was being phased in from 0.0% for 2015 to, 0.625% for 2016, 1.25% for 2017, 1.875% for 2018, and 2.50% for 2019. The Basel III Capital Rules became effective for us on January 1, 2015 with certain transition provisions fully phased in on January 1, 2019.

The regulatory capital standards are defined by the following key measurements:

a) The “Tier 1 Leverage Ratio” is defined as Tier 1 capital to average assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a Tier 1 leverage ratio greater than or equal to 4.00%. For a bank to be considered “well capitalized,” it must maintain a Tier 1 leverage ratio greater than or equal to 5.00%.

b) The “CET1 Ratio” is defined as Common equity tier 1 capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a CET1 ratio greater than or equal to 4.50% (7.00% including the 2.50% capital conservation buffer for 2019; 6.375% including the 1.875% capital conservation buffer for 2018). For a bank to be considered “well capitalized,” it must maintain a CET1 ratio greater than or equal to 6.50%.

c) The “Tier 1 Capital Ratio” is defined as Tier 1 capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a Tier 1 capital ratio greater than or equal to 6.00% (8.50% including the 2.50% capital conservation buffer for 2019; 7.875% including the 1.875% capital conservation buffer for 2018). For a bank to be considered “well capitalized,” it must maintain a Tier 1 capital ratio greater than or equal to 8.00%.

d) The “Total Capital Ratio” is defined as total capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a total capital ratio greater than or equal to 8.00% (10.50% including the 2.50% capital conservation buffer for 2019; 9.875% including the 1.875% capital conservation buffer for 2018). For a bank to be considered “well capitalized,” it must maintain a total capital ratio greater than or equal to 10.00%.

As of March 31, 2019, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. The following table sets forth the regulatory capital ratios of for the Company and the Bank at March 31, 2019 and December 31, 2018.



	March 31, 2019	December 31, 2018
Tier 1 Leverage Ratio (tier 1 capital to average assets)
Consolidated	9.43%	9.17%
Ameris Bank	10.69%	10.46%
CET1 Ratio (common equity tier 1 capital to risk weighted assets)
Consolidated	10.57%	10.07%
Ameris Bank	13.12%	12.66%
Tier 1 Capital Ratio (tier 1 capital to risk weighted assets)
Consolidated	11.58%	11.07%
Ameris Bank	13.12%	12.66%
Total Capital Ratio (total capital to risk weighted assets)
Consolidated	12.74%	12.23%
Ameris Bank	13.45%	12.98%

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 Asset and Liability Committee (the “ALCO Committee”). The policy outlines limits on interest rate risk in terms of changes in net interest income and changes in the net market values of assets and liabilities over certain changes in interest rate environments. These measurements are made through a simulation model which projects the impact of changes in interest rates on the Bank’s assets and liabilities. The policy also outlines responsibility for monitoring interest rate risk, and the process for the approval, implementation and monitoring of interest rate risk strategies to achieve the Bank’s interest rate risk objectives.

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

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

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

Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of Ameris to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term assets at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks, which could provide funds on short notice, if needed. The Company has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is equal to 30% of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At March 31, 2019 and December 31, 2018, the net carrying value of the Company’s other borrowings was $151.5 million and $151.8 million, respectively.

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



	March 31, 2019	December 31, 2018	September 30, 2018	June 30, 2018	March 31, 2018
Investment securities available for sale to total deposits	12.60%	12.36%	12.66%	13.17%	13.16%
Loans (net of unearned income) to total deposits	86.55%	88.21%	92.90%	96.91%	96.03%
Interest-earning assets to total assets	90.63%	90.43%	90.48%	90.35%	92.15%
Interest-bearing deposits to total deposits	71.91%	73.88%	74.58%	73.11%	71.02%

The liquidity resources of the Company are monitored continuously by the ALCO Committee and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s and the Bank’s liquidity ratios at March 31, 2019 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

At March 31, 2019, the Company had one cash flow hedge with a notional amount of $37.1 million for the purpose of converting the variable rate on certain junior subordinated debentures to a fixed rate. The LIBOR rate swap exchanges fixed rate payments of 4.11% for floating rate payments based on the three-month LIBOR rate and matures September 2020. The fair value of this instrument was a liability of $31,000 at March 31, 2019 and an asset of $102,000 at December 31, 2018.

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 $5.1 million and $2.5 million at March 31, 2019 and December 31, 2018, respectively, and a liability of $1.3 million at both March 31, 2019 and December 31, 2018.

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 are effective.

During the quarter ended March 31, 2019, there was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, as a normal incident of the nature and kind of business in which the Company is engaged, various claims or charges are asserted against the Company or the Bank. In the ordinary course of business, the Company and the Bank are also subject to regulatory examinations, information gathering requests, inquiries and investigations. Other than ordinary routine litigation incidental to the Company’s business, management believes based on its current knowledge and after consultation with legal counsel that there are no pending or threatened legal proceedings that will, individually or in the aggregate, have a material adverse effect on the consolidated results of operations or financial condition of the Company.

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, 2018.

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

c) Issuer Purchases of Equity Securities.

The table below sets forth information regarding the Company’s repurchase of shares of its outstanding common stock during the three-month period ended March 31, 2019.



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs⁽²⁾
January 1, 2019 through January 31, 2019	6,130	$	31.67	—	$	100,000,000
February 1, 2019 through February 28, 2019	20,004	$	40.20	—	$	100,000,000
March 1, 2019 through March 31, 2019	—	$	—	—	$	100,000,000
Total	26,134	$	38.20	—	$	100,000,000


(1)	The shares purchased from January 1, 2019 through March 31, 2019 consist of shares of common stock surrendered to the Company in payment of the income tax withholding obligations relating to the vesting of shares of restricted stock.

(2)

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On May 7, 2019, the Company and the Bank entered into a Severance Protection and Restrictive Covenants Agreement (each, a “Severance Agreement”) with each of the executive officers of the Company identified in the Company’s definitive proxy statement in connection with its 2019 annual meeting of shareholders, as filed with the Securities and Exchange Commission on April 1, 2019, including, among others, Dennis J. Zember Jr., President and Chief Executive Officer, Nicole S. Stokes, Executive Vice President and Chief Financial Officer, Lawton E. Bassett, III, Executive Vice President and Banking Group President, Jon S. Edwards, Executive Vice President and Chief Credit Officer, and James A. LaHaise, Executive Vice President and Chief Strategy Officer. In the case of each executive officer other than Ms. Stokes, the Severance Agreement replaces and supersedes his or her

prior employment or severance agreement, which automatically terminated with the execution of the Severance Agreement. The Severance Agreements were entered into following a review of executive compensation matters conducted by the Compensation Committee of the Board of Directors of the Company during which the Compensation Committee determined to provide similar terms to all executive officers for the payment of severance and other benefits upon any termination of their employment.

Each Severance Agreement provides that, in the event of termination of the executive’s employment by the Company without “cause” or by the executive for “good reason,” the Company will pay to the executive, in addition to certain accrued but unpaid amounts, (i) equal semi-monthly installments for two years in accordance with the Company’s normal payroll practices, totaling two times the sum of (A) the executive’s base salary and (B) the executive’s target cash bonus opportunity for the year in which the termination of employment occurred; (ii) a pro-rata portion of the cash bonus, if any, that the executive would have earned for the year during which the termination of employment occurred, based on the achievement of applicable performance goals; and (iii) reimbursement for any monthly COBRA premium paid for a period of as many as eighteen months. If a termination without “cause” or for “good reason” occurs at the time of, or within one year after, a “change of control” of the Company, then the amounts described in clause (i) will be paid in a lump sum instead of installments.

In the event of termination of the executive’s employment on account of the executive’s death or disability, the executive (or his or her estate or beneficiaries, as the case may be) will be entitled to receive, in addition to certain accrued but unpaid amounts, a pro-rata portion of the cash bonus, if any, that the executive would have otherwise earned for the year during which the termination of employment occurred, based on the achievement of applicable performance goals.

Each Severance Agreement also includes certain restrictive covenants that limit the executive’s ability to compete with the Company and the Bank and to solicit, or attempt to solicit, certain customers and employees for a period of two years after termination or to divulge certain confidential information concerning the Company or the Bank for any purpose other than as necessary in the executive’s performance of his or her duties.

Item 6. Exhibits.



Exhibit Number		Description

3.1		Articles of Incorporation of Ameris Bancorp, as amended (incorporated by reference to Exhibit 2.1 to Ameris Bancorp’s Regulation A Offering Statement on Form 1-A filed with the SEC on August 14, 1987).

3.2		Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp’s Annual Report on Form 10-K filed with the SEC on March 26, 1999).

3.3		Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.9 to Ameris Bancorp’s Annual Report on Form 10-K filed with the SEC on March 31, 2003).

3.4		Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on December 1, 2005).

3.5		Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on November 21, 2008).

3.6		Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on June 1, 2011).

3.7		Bylaws of Ameris Bancorp, as amended and restated effective January 16, 2018 (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the SEC on January 19, 2018).

10.1*		Form of Severance Protection and Restrictive Covenants Agreement for executive officers.

31.1		Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer.

32.1		Section 1350 Certification by the Company’s Chief Executive Officer.

32.2		Section 1350 Certification by the Company’s Chief Financial Officer.

101		The following financial statements from Ameris Bancorp’s Form 10-Q for the quarter ended March 31, 2019, formatted as interactive data files in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income and Comprehensive Income; (iii) Consolidated Statements of Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.

*Management contract or compensatory plan or arrangement.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Dated: May 10, 2019	AMERIS BANCORP

	/s/ Nicole S. Stokes
	Nicole S. Stokes
	Executive Vice President and Chief Financial Officer (duly authorized signatory and principal accounting and financial officer)