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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended June 30, 2012

OR

 

¨	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  x    No  ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

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

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

There were 23,819,144 shares of Common Stock outstanding as of July 27, 2012.

 

 

 

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AMERIS BANCORP

TABLE OF CONTENTS

 

				Page
PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements.
		Consolidated Balance Sheets at June 30, 2012, December 31, 2011 and June 30, 2011			1
		Consolidated Statements of Operations and Comprehensive Income for the Three and Six Month Periods Ended June 30, 2012 and 2011			2
		Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June  30, 2012 and 2011			3
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011			4
		Notes to Consolidated Financial Statements			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.			32
Item 3.		Quantitative and Qualitative Disclosures About Market Risk.			44
Item 4.		Controls and Procedures.			44
PART II – OTHER INFORMATION
Item 1.		Legal Proceedings.			45
Item 1A.		Risk Factors.			45
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.			45
Item 3.		Defaults Upon Senior Securities.			45
Item 4.		Mine Safety Disclosures.			45
Item 5.		Other Information.			45
Item 6.		Exhibits.			45
Signatures					45

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Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

 

		June 30, 2012				December 31, 2011				June 30, 2011
		(Unaudited)				(Audited)				(Unaudited)
Assets
Cash and due from banks		$	60,126			$	65,528			$	68,552
Federal funds sold and interest bearing accounts			111,251				229,042				218,330
Investment securities available for sale, at fair value			366,980				339,967				334,376
Other investments			7,884				9,878				10,354
Mortgage loans held for sale			19,659				11,563				—
Loans			1,365,489				1,332,086				1,360,063
Covered loans			601,737				571,489				486,489
Less: allowance for loan losses			26,198				35,156				34,523
Loans, net			1,941,028				1,868,419				1,812,029
Other real estate owned			40,018				50,301				61,533
Covered other real estate owned			83,467				78,617				63,583
Total other real estate owned			123,485				128,918				125,116
FDIC indemnification asset			203,801				242,394				160,927
Premises and equipment, net			75,192				73,124				65,925
Intangible assets, net			3,767				3,250				3,745
Goodwill			956				956				956
Other assets			6,182				21,268				56,927
Total assets		$	2,920,311			$	2,994,307			$	2,857,237
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing		$	429,113			$	395,347			$	318,004
Interest-bearing			2,115,559				2,196,219				2,193,359
Total deposits			2,544,672				2,591,566				2,511,363
Securities sold under agreements to repurchase			19,800				37,665				17,136
Other borrowings			3,810				20,000				—
Other liabilities			8,821				9,037				9,311
Subordinated deferrable interest debentures			42,269				42,269				42,269
Total liabilities			2,619,372				2,700,537				2,580,079
Commitments and contingencies
Stockholders’ Equity
Preferred stock, stated value $1,000; 5,000,000 shares authorized; 52,000 shares issued			51,044				50,727				50,419
Common stock, par value $1; 100,000,000 shares authorized; 25,155,318, 25,087,468 and 25,102,218 issued			25,155				25,087				25,102
Capital surplus			166,685				166,639				166,170
Retained earnings			61,081				54,852				38,888
Accumulated other comprehensive income			7,805				7,296				7,410
Treasury stock, at cost, 1,336,174 shares			(10,831	)			(10,831	)			(10,831	)
Total stockholders’ equity			300,939				293,770				277,158
Total liabilities and stockholders’ equity		$	2,920,311			$	2,994,307			$	2,857,237

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(dollars in thousands, except per share data)

(Unaudited)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Interest income
Interest and fees on loans		$	30,334			$	32,876			$	59,816			$	61,847
Interest on taxable securities			2,187				2,574				4,496				5,232
Interest on nontaxable securities			374				314				739				634
Interest on deposits in other banks and federal funds sold			112				159				238				347
Total interest income			33,007				35,923				65,289				68,060
Interest expense
Interest on deposits			3,635				6,828				7,719				14,200
Interest on other borrowings			491				351				962				906
Total interest expense			4,126				7,179				8,681				15,106
Net interest income			28,881				28,747				56,608				52,954
Provision for loan losses			7,225				9,115				20,107				16,158
Net interest income after provision for loan losses			21,656				19,632				36,501				36,796
Noninterest income
Service charges on deposit accounts			4,770				4,665				9,156				8,932
Mortgage banking activity			3,006				376				4,481				826
Other service charges, commissions and fees			322				273				713				515
Gain on acquisitions			—				—				20,037				—
Gain on sale of securities			—				14				—				238
Other noninterest income			777				646				1,752				1,656
Total noninterest income			8,875				5,974				36,139				12,167
Noninterest expense
Salaries and employee benefits			12,125				9,421				23,571				19,264
Equipment and occupancy expenses			2,880				2,752				6,215				5,482
Amortization of intangible assets			412				242				632				505
Data processing and telecommunications expenses			2,905				2,452				4,830				4,848
Advertising and marketing expenses			364				149				713				312
Other non-interest expenses			7,937				7,580				24,908				13,340
Total noninterest expense			26,623				22,596				60,869				43,751
Income before income tax expense			3,908				3,010				11,771				5,212
Applicable income tax expense			1,413				896				3,911				1,720
Net income		$	2,495			$	2,114			$	7,860			$	3,492
Preferred stock dividends			817				807				1,632				1,605
Net income available to common shareholders		$	1,678			$	1,307			$	6,228			$	1,887
Other comprehensive income
Unrealized holding gain arising during period on investment securities available for sale, net of tax			1,934				2,250				1,244				1,988
Reclassification adjustment for gains included in net loss, net of tax			—				(8	)			—				(154	)
Unrealized loss on cash flow hedges arising during period, net of tax			(642	)			(574	)			(736	)			(628	)
Other comprehensive income			1,292				1,668				508				1,206
		$	2,970			$	2,975			$	6,736			$	3,093
Basic and Diluted earnings per share		$	0.07			$	0.06			$	0.26			$	0.08
Weighted Average Common Shares Outstanding
Basic			23,819				23,449				23,791				23,445
Diluted			23,973				23,508				23,945				23,491

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in thousands, except per share data)

(Unaudited)

 

		Six Months Ended								Six Months Ended
		June 30, 2012								June 30, 2011
		Shares				Amount				Shares				Amount
PREFERRED STOCK
Balance at beginning of period			52,000			$	50,727				52,000			$	50,121
Accretion of fair value of warrant			—				317				—				298
Issued at end of period			52,000			$	51,044				52,000			$	50,419
COMMON STOCK
Issued at beginning of period			25,087,468			$	25,087				24,982,911			$	24,983
Issuance of restricted shares			67,450				67				125,075				125
Cancellation of restricted shares			—				—				(7,000	)			(7	)
Proceeds from exercise of stock options			400				1				1,232				1
Issued at end of period			25,155,318			$	25,155				25,102,218			$	25,102
CAPITAL SURPLUS
Balance at beginning of period						$	166,639							$	165,930
Stock-based compensation							111								349
Proceeds from exercise of stock options							2								9
Issuance of restricted shares							(67	)							(125	)
Cancellation of restricted shares							—								7
Balance at end of period						$	166,685							$	166,170
RETAINED EARNINGS
Balance at beginning of period						$	54,852							$	37,000
Net income							7,860								3,492
Dividends on preferred shares							(1,314	)							(1,306	)
Accretion of fair value of warrant							(317	)							(298	)
Balance at end of period						$	61,081							$	38,888
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains on securities and derivatives:
Balance at beginning of period						$	7,296							$	6,204
Other comprehensive income							509								1,206
Balance at end of period						$	7,805							$	7,410
TREASURY STOCK
Balance at beginning of period						$	10,831							$	10,831
Purchase of treasury shares							—								—
Balance at end of period						$	10,831							$	10,831
TOTAL STOCKHOLDERS’ EQUITY						$	300,939							$	277,158

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

 

		Six Months Ended June 30,
		2012				2011
Cash Flows From Operating Activities:
Net income		$	7,860			$	3,492
Adjustments reconciling net income to net cash provided by operating activities:
Depreciation			2,331				2,168
Net gains on sale or disposal of premises and equipment			(1	)			(139	)
Net losses or write-downs on sale of other real estate owned			8,065				3,570
Provision for loan losses			20,107				16,158
Gain on acquisitions			(23,037	)			—
Amortization of intangible assets			632				505
Net change in mortgage loans held for sale			(8,096	)			—
Net gains on securities available for sale			—				(238	)
Change in other prepaids, deferrals and accruals, net			14,163				(15,659	)
Net cash provided by operating activities			25,024				9,857
Cash Flows From Investing Activities, net of effect of business combinations:
Net (increase)/decrease in federal funds sold and interest bearing deposits			117,791				42,932
Proceeds from maturities of securities available for sale			52,737				37,430
Purchase of securities available for sale			(63,757	)			(85,556	)
Proceeds from sales of securities available for sale			28,923				39,388
Net decrease in loans			1,691				33,819
Proceeds from sales of other real estate owned			33,920				21,361
Proceeds from sales of premises and equipment			346				1,105
Purchases of premises and equipment			(4,744	)			(2,459	)
Decrease in FDIC indemnification asset			91,247				16,260
Net cash proceeds received from FDIC-assisted acquisitions			65,050				—
Net cash provided by investing activities			323,204				104,280
Cash Flows From Financing Activities, net of effect of business combinations:
Net decrease in deposits			(307,930	)			(24,063	)
Net decrease in securities sold under agreements to repurchase			(17,865	)			(51,048	)
Decrease in other borrowings			(26,524	)			(43,495	)
Dividends paid—preferred stock			(1,314	)			(1,305	)
Proceeds from exercise of stock options			3				—
Net cash used in financing activities			(353,630	)			(119,911	)
Net decrease in cash and due from banks		$	(5,402	)		$	(5,774	)
Cash and due from banks at beginning of period			65,528				74,326
Cash and due from banks at end of period		$	60,126			$	68,552
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid/(received) during the period for:
Interest		$	9,928			$	16,044
Income taxes		$	48			$	902

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2012

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES

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 June 30, 2012, the Bank operated 67 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. Ameris’ Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within Ameris’ established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of their unique market.

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 which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended June 30, 2012 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, 2011.

Newly Adopted Accounting Pronouncements

ASU 2011-04 – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 generally represents clarifications of Topic 820, but also includes some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. ASU 2011-04 results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements. ASU 2011-04 is to be applied prospectively and is effective during interim and annual periods beginning after December 15, 2011 for public companies. It did not have a material impact on the Company’s results of operations, financial position or disclosures.

ASU 2011-05 – Amendments to Topic 220, Comprehensive Income (“ASU 2011-05”). ASU 2011-05 grants an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. For public entities, ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and is to be adopted retrospectively. It did not have a material impact on the Company’s results of operations, financial position or disclosures.

ASU 2011-08 – Intangibles – Goodwill and Other (Topic 350) Testing Goodwill for Impairment (“ASU 2011-08”). ASU 2011-08 grants an entity the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This conclusion can be used as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required in Topic 350. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. It is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

Fair Value of Financial Instruments

The fair value of a financial instrument 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 financial instruments. 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 instrument. The accounting standard for disclosures about the fair value of financial instruments 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.

 

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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 statement of 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 loans held-for-sale and the associated economic hedges are captured in mortgage banking activities.

The fair value hierarchy describes three levels of inputs that may be used to measure fair value:

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 financial instruments and other accounts recorded based on their fair value:

Cash and Due From Banks, Federal Funds Sold and Interest-Bearing Accounts: The carrying amount of cash and due from banks, federal funds sold and interest-bearing accounts 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 mortgage-backed securities issued by government sponsored enterprises and municipal bonds. 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 include certain residual municipal securities and other less liquid securities.

Other Investments: Federal Home Loan Bank (“FHLB”) stock is included in other investments at its original cost basis, as cost approximates fair value and there is no ready market for such investments.

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

Loans: The carrying amount of variable-rate loans that reprice frequently and have no significant change in credit risk approximates fair value. The fair value of fixed-rate loans is estimated based on discounted contractual cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The fair value of impaired loans is estimated based on discounted expected future 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 loan will not be collected as scheduled. The fair value of impaired loans is determined in accordance with accounting standards 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 2 assets due to the extensive use of market appraisals. To the extent that market appraisals or other methods do not produce reliable determinations of fair value, these assets are deemed to be Level 3.

Other Real Estate Owned: The fair value of other real estate owned (“OREO”) is determined using certified appraisals 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 other real estate owned should be classified as Level 3.

Covered Assets: Covered assets include loans and other real estate owned on which the majority of losses would be covered by loss-sharing agreements with the Federal Deposit Insurance Corporation (the “FDIC”). Management initially valued these assets at fair value using mostly unobservable inputs and, as such, has classified these assets as Level 3.

 

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Intangible Assets and Goodwill: Intangible assets consist of 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 three to ten years. Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill and other intangible assets deemed to have an indefinite useful life are not amortized but instead are subject to an annual review for impairment.

FDIC Indemnification Asset: 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.

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 offered for certificates with similar maturities.

Securities Sold under Agreements to Repurchase and Other Borrowings: The carrying amount of variable rate borrowings and securities sold under repurchase agreements approximates fair value. 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.

Subordinated Deferrable Interest Debentures: The carrying amount of the Company’s variable rate trust preferred securities approximates fair value.

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 are 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 June 30, 2012, December 31, 2011 and June 30, 2011, 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.

 

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

 

						Fair Value Measurements at June 30, 2012 Using:
		Carrying Amount				Level 1				Level 2				Level 3				Total
		(Dollars in Thousands)
Financial assets:
Loans, net		$	1,941,028			$	—			$	1,975,541			$	—			$	1,975,541
Financial liabilities:
Deposits			2,544,672				—				2,546,740				—				2,546,740
Other borrowings			3,810				3,835				—				—				3,835

 

		December 31, 2011								June 30, 2011
		Carrying Amount				Fair Value				Carrying Amount				Fair Value
		(Dollars in Thousands)
Financial assets:
Loans, net		$	1,868,419			$	1,877,320			$	1,812,029			$	1,818,152
Financial liabilities:
Deposits			2,591,566				2,593,113				2,511,363				2,513,459
Other borrowings			20,000				20,936				—				—

The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of June 30, 2012 and 2011 and December 31, 2011 (dollars in thousands):

 

		Fair Value Measurements on a Recurring Basis As of June 30, 2012
		Fair Value				Level 1				Level 2				Level 3
U.S. government agencies		$	8,898			$	—			$	8,898			$	—
State, county and municipal securities			100,327				5,432				94,895				—
Corporate debt securities			11,506				250				9,256				2,000
Mortgage backed securities			246,249				5,086				241,163				—
Mortgage loans held for sale			19,659				—				19,659				—
Total recurring assets at fair value		$	386,639			$	10,768			$	373,871			$	2,000
Derivative financial instruments		$	2,970			$	—			$	2,970				—
Total recurring liabilities at fair value		$	2,970			$	—			$	2,970			$	—
		Fair Value Measurements on a Recurring Basis As of December 31, 2011
		Fair Value				Level 1				Level 2				Level 3
U.S. government agencies		$	14,937			$	—			$	14,937			$	—
State, county and municipal securities			79,133				2,966				76,167				—
Corporate debt securities			11,401				—				9,401				2,000
Mortgage backed securities			234,496				3,302				231,194				—
Derivative financial instruments			(2,049	)			—				(2,049	)			—
Total recurring assets at fair value		$	337,918			$	6,268			$	329,650			$	2,000
		Fair Value Measurements on a Recurring Basis As of June 30, 2011
		Fair Value				Level 1				Level 2				Level 3
U.S. government agencies		$	24,259			$	—			$	24,259			$	—
State, county and municipal securities			60,546				2,367				58,179				—
Corporate debt securities			9,722				—				7,722				2,000
Mortgage backed securities			239,849				8,153				231,696				—
Derivative financial instruments			243				—				243				—
Total recurring assets at fair value		$	334,619			$	10,520			$	322,099			$	2,000

 

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The following table is a presentation of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy as of June 30, 2012 and 2011 and December 31, 2011 (dollars in thousands):

 

		Fair Value Measurements on a Nonrecurring Basis As of June 30, 2012
		Fair Value				Level 1				Level 2				Level 3
Impaired loans carried at fair value		$	60,277			$	—			$	60,277			$	—
Other real estate owned			40,018				—				—				40,018
Covered loans			601,737				—				—				601,737
Covered other real estate owned			83,467				—				—				83,467
Total non-recurring assets at fair value		$	785,499			$	—			$	60,277			$	725,222
		Fair Value Measurements on a Nonrecurring Basis As of December 31, 2011
		Fair Value				Level 1				Level 2				Level 3
Impaired loans carried at fair value		$	70,296			$	—			$	70,296			$	—
Other real estate owned			50,301				—				—				50,301
Covered loans			571,489				—				—				571,489
Covered other real estate owned			78,617				—				—				78,617
Total nonrecurring assets at fair value		$	770,703			$	—			$	70,296			$	700,407
		Fair Value Measurements on a Nonrecurring Basis As of June 30, 2011
		Fair Value				Level 1				Level 2				Level 3
Impaired loans carried at fair value		$	60,545			$	—			$	60,545			$	—
Other real estate owned			61,533				—				—				61,533
Covered loans			486,489				—				—				486,489
Covered other real estate owned			63,583				—				—				63,583
Total nonrecurring assets at fair value		$	672,150			$	—			$	60,545			$	611,605

Below is the Company’s reconciliation of Level 3 assets as of June 30, 2012 (dollars in thousands):

 

		Investment Securities Available for Sale				Other Real Estate Owned				Covered Loans				Covered Other Real Estate
Beginning balance January 1, 2012		$	2,000			$	50,301			$	571,489			$	78,617
Total gains/(losses) included in net income			—				(8,065	)			—				—
Purchases, sales, issuances, and settlements, net			—				(12,609	)			50,232				(15,134	)
Transfers in or out of Level 3			—				10,391				(19,984	)			19,984
Ending balance June 30, 2012		$	2,000			$	40,018			$	601,737			$	83,467

 

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NOTE 2 – INVESTMENT SECURITIES

Ameris’ investment policy blends the Company’s liquidity needs and interest rate risk management with its desire to increase income and provide funds for expected growth in loans. The investment securities portfolio consists primarily of U.S. government sponsored mortgage-backed securities and agencies, state, county and municipal securities and corporate debt securities. Ameris’ portfolio and investing philosophy concentrate activities in obligations where the credit risk is limited. For the small portion of Ameris’ portfolio found to present credit risk, the Company has reviewed the investments and financial performance of the obligors and believes the credit risk to be acceptable.

The amortized cost and estimated fair value of investment securities available for sale at June 30, 2012, December 31, 2011 and June 30, 2011 are presented below:

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(Dollars in Thousands)
June 30, 2012:
U. S. government agencies		$	8,602			$	296			$	—			$	8,898
State, county and municipal securities			95,354				5,047				(74	)			100,327
Corporate debt securities			11,792				231				(517	)			11,506
Mortgage-backed securities			239,412				7,032				(195	)			246,249
Total securities		$	355,160			$	12,606			$	(786	)		$	366,980
December 31, 2011:
U. S. government agencies		$	14,670			$	267			$	—			$	14,937
State, county and municipal securities			75,665				3,558				(90	)			79,133
Corporate debt securities			11,640				167				(406	)			11,401
Mortgage-backed securities			228,085				6,559				(148	)			234,496
Total securities		$	330,060			$	10,551			$	(644	)		$	339,967
June 30, 2011:
U. S. government agencies		$	24,056			$	203			$	—			$	24,259
State, county and municipal securities			58,636				1,950				(40	)			60,546
Corporate debt securities			11,637				242				(2,157	)			9,722
Mortgage-backed securities			234,437				5,979				(567	)			239,849
Total securities		$	328,766			$	8,374			$	(2,764	)		$	334,376

The amortized cost and fair value of available-for-sale securities at June 30, 2012 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 not included in the following maturity summary:

 

		Amortized Cost				Fair Value
		(Dollars in Thousands)
Due in one year or less		$	9,306			$	9,320
Due from one year to five years			18,553				19,264
Due from five to ten years			51,174				54,892
Due after ten years			36,715				37,255
Mortgage-backed securities			239,412				246,249
		$	355,160			$	366,980

Securities with a carrying value of approximately $201.2 million serve as collateral to secure public deposits and other purposes required or permitted by law at June 30, 2012.

 

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The following table details the gross unrealized losses and fair value of securities aggregated by category and duration of continuous unrealized loss position at June 30, 2012, December 31, 2011 and June 30, 2011.

 

		Less Than 12 Months								12 Months or More								Total
Description of Securities		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
		(Dollars in Thousands)
June 30, 2012:
U. S. government agencies		$	—			$	—			$	—			$	—			$	—			$	—
State, county and municipal securities			10,342				(73	)			—				—				10,342				(73	)
Corporate debt securities			—				—				6,562				(518	)			6,562				(518	)
Mortgage-backed securities			31,680				(167	)			5,040				(28	)			36,720				(195	)
Total temporarily impaired securities		$	42,022			$	(240	)		$	11,602			$	(546	)		$	53,624			$	(786	)
December 31, 2011:
U. S. government agencies		$	—			$	—			$	—			$	—			$	—			$	—
State, county and municipal securities			10,134				(90	)			—				—				10,134				(90	)
Corporate debt securities			100				—				6,681				(406	)			6,781				(406	)
Mortgage-backed securities			20,929				(148	)			—				—				20,929				(148	)
Total temporarily impaired securities		$	31,163			$	(238	)		$	6,681			$	(406	)		$	37,844			$	(644	)
June 30, 2011:
U. S. government agencies		$	—			$	—			$	—			$	—			$	—			$	—
State, county and municipal securities			3,844				(39	)			203				(1	)			4,047				(40	)
Corporate debt securities			100				(1	)			4,936				(2,156	)			5,036				(2,157	)
Mortgage-backed securities			60,926				(567	)			—				—				60,926				(567	)
Total temporarily impaired securities		$	64,870			$	(607	)		$	5,139			$	(2,158	)		$	70,009			$	(2,764	)

NOTE 3 – LOANS

The Company 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. Ameris 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 Ameris’ 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.

Commercial, financial and agricultural loans include both secured and unsecured loans for working capital, expansion, crop production, and other business purposes. Short-term working capital loans are secured by non-real estate collateral such as accounts receivable, crops, inventory and equipment. The Company 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, construction of one-to-four family 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, farmland and warehouse space. They also include non-owner occupied commercial buildings such as leased retail and office space. Commercial real estate loans may be larger in size and may involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on such loans are often dependent on successful operation or management of the properties. The Company’s residential loans represent permanent mortgage financing and are secured by residential properties located within the Bank’s market areas.

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

 

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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:

 

(Dollars in Thousands)		June 30, 2012				December 31, 2011				June 30, 2011
Commercial, financial and agricultural		$	174,903			$	142,960			$	150,377
Real estate – construction and development			124,556				130,270				143,684
Real estate – commercial and farmland			675,404				672,765				681,228
Real estate – residential			332,124				330,727				336,485
Consumer installment			41,431				37,296				35,584
Other			17,071				18,068				12,705
		$	1,365,489			$	1,332,086			$	1,360,063

Covered loans are defined as loans that were acquired in FDIC-assisted transactions that are covered by a loss-sharing agreement with the FDIC. Covered loans totaling $601.7 million, $571.5 million and $486.5 million at June 30, 2012, December 31, 2011 and June 30, 2011, respectively, are not included in the above schedule.

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

 

(Dollars in Thousands)		June 30, 2012				December 31, 2011				June 30, 2011
Commercial, financial and agricultural		$	41,372			$	41,867			$	42,494
Real estate – construction and development			83,991				77,077				79,540
Real estate – commercial and farmland			322,393				321,257				229,924
Real estate – residential			150,683				127,644				129,721
Consumer installment			3,298				3,644				4,810
		$	601,737			$	571,489			$	486,489

Nonaccrual and Past Due Loans

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged to interest income. Interest on loans that are classified as non-accrual is recognized when received. Past due loans are loans whose principal or interest is past due 90 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 non-covered loans accounted for on a nonaccrual basis:

 

(Dollars in Thousands)		June 30, 2012				December 31, 2011				June 30, 2011
Commercial, financial and agricultural		$	4,968			$	3,987			$	5,439
Real estate – construction and development			8,979				15,020				13,714
Real estate – commercial and farmland			13,728				35,385				24,205
Real estate – residential			15,542				15,498				16,625
Consumer installment			1,204				933				562
		$	44,421			$	70,823			$	60,545

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

 

(Dollars in Thousands)		June 30, 2012				December 31, 2011				June 30, 2011
Commercial, financial and agricultural		$	13,406			$	11,952			$	11,809
Real estate – construction and development			28,225				30,977				31,131
Real estate – commercial and farmland			71,271				75,458				55,771
Real estate – residential			37,669				41,139				36,129
Consumer installment			654				473				705
		$	151,225			$	159,999			$	135,545

 

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The following table presents an analysis of non-covered past due loans as of June 30, 2012, December 31, 2011 and June 30, 2011.

 

		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
		(Dollars in Thousands)
As of June 30, 2012:
Commercial, financial & agricultural		$	531			$	701			$	4,371			$	5,603			$	169,300			$	174,903			$	—
Real estate – construction & development			1,986				2,119				7,855				11,960				112,596				124,556				—
Real estate – commercial & farmland			5,282				6,930				8,597				20,809				654,595				675,404				—
Real estate – residential			5,665				3,885				14,782				24,332				307,792				332,124				—
Consumer installment loans			545				220				1,117				1,883				39,548				41,431				1
Other			—				—				—				—				17,071				17,071				—
Total		$	14,009			$	13,855			$	36,722			$	64,587			$	1,300,902			$	1,365,489			$	1
		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
		(Dollars in Thousands)
As of December 30, 2011:
Commercial, financial & agricultural		$	1,103			$	705			$	3,975			$	5,783			$	137,177			$	142,960			$	—
Real estate – construction & development			2,395				1,507				13,608				17,510				112,760				130,270				—
Real estate – commercial & farmland			6,686				7,071				32,953				46,710				626,055				672,765				—
Real estate – residential			5,229				4,995				12,874				23,098				307,629				330,727				—
Consumer installment loans			963				305				725				1,993				35,303				37,296				—
Other			—				—				—				—				18,068				18,068				—
Total		$	16,376			$	14,583			$	64,135			$	95,094			$	1,236,992			$	1,332,086			$	—
		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
		(Dollars in Thousands)
As of June 30, 2011:
Commercial, financial & agricultural		$	653			$	282			$	5,334			$	6,269			$	144,108			$	150,377			$	—
Real estate – construction & development			1,551				1,243				13,194				15,988				127,696				143,684				—
Real estate – commercial & farmland			8,494				807				23,898				33,199				648,029				681,228				—
Real estate – residential			5,086				2,729				14,539				22,354				314,131				336,485				—
Consumer installment loans			525				178				493				1,196				34,388				35,584				—
Other			—				—				—				—				12,705				12,705				—
Total		$	16,309			$	5,239			$	57,458			$	79,006			$	1,281,057			$	1,360,063			$	—

 

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The following table presents an analysis of covered past due loans as of June 30, 2012, December 31, 2011 and June 30, 2011.

 

		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
		(Dollars in Thousands)
As of June 30, 2012:
Commercial, financial & agricultural		$	851			$	754			$	12,703			$	14,308			$	27,064			$	41,372			$	298
Real estate – construction & development			2,688				3,007				25,021				30,716				53,275				83,991				—
Real estate – commercial & farmland			12,452				7,656				60,879				80,987				241,406				322,393				891
Real estate – residential			5,366				3,180				31,607				40,153				110,530				150,683				78
Consumer installment loans			70				40				430				540				2,758				3,298				—
Total		$	21,427			$	14,637			$	130,640			$	166,704			$	435,033			$	601,737			$	1,267
		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
		(Dollars in Thousands)
As of December 30, 2011:
Commercial, financial & agricultural		$	968			$	4,297			$	11,253			$	16,518			$	25,349			$	41,867			$	—
Real estate – construction & development			2,444				1,318				27,867				31,629				45,448				77,077				—
Real estate – commercial & farmland			18,282				8,544				64,091				90,917				230,340				321,257				165
Real estate – residential			3,485				1,493				35,950				40,928				86,716				127,644				290
Consumer installment loans			127				270				440				837				2,807				3,644				—
Total		$	25,306			$	15,922			$	139,601			$	180,829			$	390,660			$	571,489			$	455
		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
		(Dollars in Thousands)
As of June 30, 2011:
Commercial, financial & agricultural		$	1,201			$	635			$	11,047			$	12,883			$	29,611			$	42,494			$	313
Real estate – construction & development			1,424				1,068				28,531				31,023				48,517				79,540				75
Real estate – commercial & farmland			3,941				6,075				52,287				62,303				167,621				229,924				2,223
Real estate – residential			2,445				3,403				33,354				39,202				90,519				129,721				444
Consumer installment loans			76				47				645				768				4,042				4,810				—
Total		$	9,087			$	11,228			$	125,864			$	146,179			$	340,310			$	486,489			$	3,055

 

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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. 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. Impaired loans include loans on nonaccrual status and troubled debt restructurings. The Company individually assesses for impairment all nonaccrual loans greater than $200,000 and rated substandard or worse and all troubled debt restructurings greater than $100,000. 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 non-covered impaired loans:

 

		As of and For the Period Ended
		June 30, 2012				December 31, 2011				June 30, 2011
		(Dollars in Thousands)
Nonaccrual loans		$	44,421			$	70,823			$	60,545
Troubled debt restructurings not included above			22,970				17,951				21,756
Total impaired loans		$	67,391			$	88,774			$	82,301
Impaired loans not requiring a related allowance		$	—			$	—			$	—
Impaired loans requiring a related allowance		$	67,391			$	88,774			$	82,301
Allowance related to impaired loans		$	7,136			$	18,478			$	15,328
Average investment in impaired loans		$	78,432			$	88,320			$	76,136
Interest income recognized on impaired loans		$	153			$	637			$	150
Foregone interest income on impaired loans		$	332			$	613			$	249

The following table presents an analysis of information pertaining to non-covered impaired loans as of June 30, 2012, December 31, 2011 and June 30, 2011.

 

		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of June 30, 2012:
Commercial, financial & agricultural		$	8,116			$	—			$	4,968			$	4,968			$	692			$	4,936
Real estate – construction & development			18,805				—				10,184				10,184				1,070				12,611
Real estate – commercial & farmland			32,265				—				27,021				27,021				2,081				37,111
Real estate – residential			27,069				—				24,014				24,014				3,254				22,637
Consumer installment loans			1,331				—				1,204				1,204				39				1,137
Total		$	87,586			$	—			$	67,391			$	67,391			$	7,136			$	78,432

 

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		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of December 31, 2011:
Commercial, financial & agricultural		$	9,592			$	—			$	5,110			$	5,110			$	1,366			$	5,700
Real estate – construction & development			21,893				—				15,672				15,672				4,053				18,667
Real estate – commercial & farmland			48,688				—				45,006				45,006				8,331				42,192
Real estate – residential			25,309				—				22,053				22,053				4,499				21,081
Consumer installment loans			1,056				—				933				933				229				680
Total		$	106,538			$	—			$	88,774			$	88,774			$	18,478			$	88,320
		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of June 30, 2011:
Commercial, financial & agricultural		$	9,229			$	—			$	3,853			$	3,853			$	1,586			$	4,391
Real estate – construction & development			26,562				—				12,198				12,198				3,695				16,113
Real estate – commercial & farmland			42,445				—				33,045				33,045				5,096				38,738
Real estate – residential			24,118				—				17,456				17,456				4,810				16,451
Consumer installment loans			732				—				421				421				141				443
Total		$	103,086			$	—			$	66,973			$	66,973			$	15,328			$	76,136

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

 

		As of and For the Period Ended
		June 30, 2012				December 31, 2011				June 30, 2011
		(Dollars in Thousands)
Nonaccrual loans		$	151,225			$	159,999			$	135,545
Troubled debt restructurings not included above			14,842				19,884				9,312
Total impaired loans		$	166,067			$	179,883			$	144,857
Impaired loans not requiring a related allowance		$	166,067			$	179,883			$	144,857
Impaired loans requiring a related allowance		$	—			$	—			$	—
Allowance related to impaired loans		$	—			$	—			$	—
Average investment in impaired loans		$	178,130			$	138,950			$	119,950
Interest income recognized on impaired loans		$	628			$	526			$	287
Foregone interest income on impaired loans		$	482			$	202			$	122

 

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The following table presents an analysis of information pertaining to impaired covered loans as of June 30, 2012, December 31, 2011 and June 30, 2011.

 

		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of June 30, 2012:
Commercial, financial & agricultural		$	22,616			$	13,464			$	—			$	13,464			$	—			$	13,250
Real estate – construction & development			46,439				30,586				—				30,586				—				34,260
Real estate – commercial & farmland			110,388				81,330				—				81,330				—				85,639
Real estate – residential			58,645				40,033				—				40,033				—				44,393
Consumer installment loans			1,034				654				—				654				—				588
Total		$	239,122			$	166,067			$	—			$	166,067			$	—			$	178,130
		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of December 31, 2011:
Commercial, financial & agricultural		$	21,352			$	12,027			$	—			$	12,027			$	—			$	10,210
Real estate – construction & development			47,005				34,363				—				34,363				—				30,610
Real estate – commercial & farmland			106,953				84,740				—				84,740				—				56,607
Real estate – residential			68,411				48,280				—				48,280				—				40,675
Consumer installment loans			623				473				—				473				—				848
Total		$	244,344			$	179,883			$	—			$	179,883			$	—			$	138,950
		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of June 30, 2011:
Commercial, financial & agricultural		$	23,421			$	11,866			$	—			$	11,866			$	—			$	8,943
Real estate – construction & development			75,282				31,131				—				31,131				—				28,435
Real estate – commercial & farmland			101,453				57,422				—				57,422				—				44,234
Real estate – residential			71,421				43,733				—				43,733				—				37,233
Consumer installment loans			807				705				—				705				—				1,105
Total		$	272,384			$	144,857			$	—			$	144,857			$	—			$	119,950

Credit Quality Indicators

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

Grade 10 – Prime Credit – This grade represents loans to the Company’s most creditworthy borrowers or loans that are secured by cash or cash equivalents.

Grade 15 – Good Credit – This grade includes loans that exhibit one or more characteristics better than that of a Satisfactory Credit. Generally, debt service coverage and borrower’s liquidity is materially better than required by the Company’s loan policy.

Grade 20 – Satisfactory Credit – This grade is assigned to loans to borrowers who exhibit satisfactory credit histories, contain acceptable loan structures and demonstrate ability to repay.

Grade 23 – Performing, Under-Collateralized 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.

 

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Grade 25 – Minimum Acceptable Credit – This grade includes loans which exhibit all the characteristics of a Satisfactory 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, 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, 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 30 – Other Asset 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 40 – Substandard – This grade represents loans which are inadequately protected by the current sound worth 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 50 – 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 60 – 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 loss 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 non-covered loan portfolio by risk grade as of June 30, 2012.

 

Risk Grade		Commercial, financial & agricultural				Real estate - construction & development				Real estate - commercial & farmland				Real estate - residential				Consumer installment loans				Other				Total
		(Dollars in Thousands)
10		$	20,395			$	17			$	230			$	414			$	7,226			$	—			$	28,282
15			11,909				3,628				158,608				75,752				1,260				—				251,157
20			79,985				39,077				287,874				93,018				23,537				17,071				540,562
23			—				6,691				9,578				13,839				23				—				30,131
25			54,072				57,266				170,342				109,269				7,035				—				397,984
30			1,404				4,018				17,870				12,461				554				—				36,307
40			7,137				13,703				30,902				27,306				1,776				—				80,824
50			1				156				—				65				20				—				242
60			—				—				—				—				—				—				—
Total		$	174,903			$	124,556			$	675,404			$	332,124			$	41,431			$	17,071			$	1,365,489

The following table presents the non-covered loan portfolio by risk grade as of December 31, 2011.

 

Risk Grade		Commercial, financial & agricultural				Real estate - construction & development				Real estate - commercial & farmland				Real estate - residential				Consumer installment loans				Other				Total
		(Dollars in Thousands)
10		$	17,213			$	20			$	235			$	252			$	6,210			$	—			$	23,930
15			15,379				5,391				151,068				88,586				1,065				—				261,489
20			60,631				32,654				272,241				80,989				20,781				18,068				485,364
23			32				7,994				10,679				10,997				28				—				29,730
25			42,815				62,029				163,554				110,786				7,181				—				386,365
30			2,509				2,027				21,490				15,001				557				—				41,584
40			4,258				19,864				53,498				23,867				1,460				—				102,947
50			123				291				—				249				14				—				677
60			—				—				—				—				—				—				—
Total		$	142,960			$	130,270			$	672,765			$	330,727			$	37,296			$	18,068			$	1,332,086

 

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The following table presents the non-covered loan portfolio by risk grade as of June 30, 2011.

 

Risk Grade		Commercial, financial & agricultural				Real estate - construction & development				Real estate - commercial & farmland				Real estate - residential				Consumer installment loans				Other				Total
		(Dollars in Thousands)
10		$	13,799			$	213			$	329			$	109			$	5,926			$	—			$	20,376
15			11,307				3,483				151,047				35,416				899				—				202,152
20			61,543				36,007				274,185				128,581				21,477				12,705				534,498
23			1,614				7,360				8,484				12,346				29				—				29,833
25			54,635				67,615				157,862				121,094				5,927				—				407,133
30			1,477				6,071				44,388				13,028				564				—				65,528
40			5,362				22,659				44,933				25,911				747				—				99,612
50			640				276				—				—				6				—				922
60			—				—				—				—				9				—				9
Total		$	150,377			$	143,684			$	681,228			$	336,485			$	35,584			$	12,705			$	1,360,063

The following table presents the covered loan portfolio by risk grade as of June 30, 2012.

 

Risk Grade		Commercial, financial & agricultural				Real estate - construction & development				Real estate - commercial & farmland				Real estate - residential				Consumer installment loans				Other				Total
		(Dollars in Thousands)
10		$	172			$	9			$	—			$	857			$	412			$	—			$	1,450
15			115				47				1,717				560				10				—				2,449
20			5,963				15,440				37,729				38,108				745				—				97,985
23			11				1,602				3,784				1,840				—				—				7,237
25			13,545				19,814				139,886				49,254				1,254				—				223,753
30			4,544				9,843				38,306				10,873				89				—				63,655
40			17,017				37,236				100,971				49,080				788				—				205,092
50			5				—				—				111				—				—				116
60			—				—				—				—				—				—				—
Total		$	41,372			$	83,991			$	322,393			$	150,683			$	3,298			$	—			$	601,737

The following table presents the covered loan portfolio by risk grade as of December 31, 2011.

 

Risk Grade		Commercial, financial & agricultural				Real estate - construction & development				Real estate - commercial & farmland				Real estate - residential				Consumer installment loans				Other				Total
		(Dollars in Thousands)
10		$	442			$	—			$	—			$	1,329			$	768			$	—			$	2,539
15			29				52				1,755				586				14				—				2,436
20			4,807				5,751				26,211				19,216				687				—				56,672
23			—				1,177				3,262				1,038				—				—				5,477
25			15,531				21,142				137,981				43,606				1,308				—				219,568
30			5,882				10,654				49,642				12,374				172				—				78,724
40			15,176				38,273				102,406				49,495				695				—				206,045
50			—				28				—				—				—				—				28
60			—				—				—				—				—				—				—
Total		$	41,867			$	77,077			$	321,257			$	127,644			$	3,644			$	—			$	571,489

 

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The following table presents the covered loan portfolio by risk grade as of June 30, 2011.

 

Risk Grade		Commercial, financial & agricultural				Real estate - construction & development				Real estate - commercial & farmland				Real estate - residential				Consumer installment loans				Other				Total
		(Dollars in Thousands)
10		$	614			$	—			$	—			$	—			$	543			$	—			$	1,157
15			63				53				650				476				20				—				1,262
20			7,872				6,240				28,951				19,630				1,182				—				63,875
23			280				105				1,047				855				—				—				2,287
25			13,860				20,458				83,901				48,744				1,719				—				168,682
30			4,351				11,425				29,231				9,540				257				—				54,804
40			15,250				41,259				86,144				50,112				1,089				—				193,854
50			204				—				—				364				—				—				568
60			—				—				—				—				—				—				—
Total		$	42,494