Edgar Filing: Ameris Bancorp

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FORM 10-Q

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 September 30, 2013

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

Commission File Number: 001-13901

LOGO

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):

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 23,905,509 shares of Common Stock outstanding as of October 31, 2013.

AMERIS BANCORP

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		Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements.

	Consolidated Balance Sheets at September 30, 2013, December 31, 2012 and September 30, 2012		1

	Consolidated Statements of Earnings and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2013 and 2012		2

	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2013 and 2012		3

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012		4

	Notes to Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		50

Item 4.	Controls and Procedures.		50

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.		51

Item 1A.	Risk Factors.		51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		51

Item 3.	Defaults Upon Senior Securities.		51

Item 4.	Mine Safety Disclosures.		51

Item 5.	Other Information.		51

Item 6.	Exhibits.		51

Signatures			52

Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)


	September 30, 2013			December 31, 2012			September 30, 2012
	(Unaudited)			(Audited)			(Unaudited)
Assets
Cash and due from banks	$	53,516		$	80,256		$	57,289
Federal funds sold and interest-bearing accounts		73,899			193,677			66,872
Investment securities available for sale, at fair value		312,248			346,909			361,051
Other investments		7,764			6,832			7,003
Mortgage loans held for sale		69,634			48,786			29,021

Loans		1,589,267			1,450,635			1,439,862
Covered loans		417,649			507,712			546,234
Less: allowance for loan losses		23,854			23,593			25,901

Loans, net		1,983,062			1,934,754			1,960,195


Other real estate owned		37,978			39,850			37,325
Covered other real estate owned		52,552			88,273			88,895

Total other real estate owned		90,530			128,123			126,220

FDIC loss-share receivable		81,763			159,724			198,440
Premises and equipment, net		65,661			75,983			75,609
Intangible assets, net		1,972			3,040			3,404
Goodwill		956			956			956
Cash value of bank owned life insurance		49,095			15,603			50,087
Other assets		28,402			24,409			13,236

Total assets	$	2,818,502		$	3,019,052		$	2,949,383

Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing	$	475,505		$	510,751		$	464,503
Interest-bearing		1,967,916			2,113,912			2,115,614

Total deposits		2,443,421			2,624,663			2,580,117
Securities sold under agreements to repurchase		20,255			50,120			17,404
Other borrowings		5,000			—			—
Other liabilities		17,201			22,983			10,387
Subordinated deferrable interest debentures		42,269			42,269			42,269

Total liabilities		2,528,146			2,740,035			2,650,177


Commitments and contingencies

Stockholders’ Equity
Preferred stock, stated value $1,000; 5,000,000 shares authorized; 28,000, 28,000 and 52,000 shares issued and outstanding		27,938			27,662			51,207
Common stock, par value $1; 100,000,000 shares authorized; 25,270,851, 25,154,818 and 25,155,318 issued		25,271			25,155			25,155
Capital surplus		165,835			164,949			164,182
Retained earnings		83,025			65,710			62,156
Accumulated other comprehensive income (loss)		(531	)		6,607			7,337
Treasury stock, at cost, 1,363,342, 1,355,050 and 1,336,174 shares		(11,182	)		(11,066	)		(10,831	)

Total stockholders’ equity		290,356			279,017			299,206

Total liabilities and stockholders’ equity	$	2,818,502		$	3,019,052		$	2,949,383

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)

(dollars in thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Interest income
Interest and fees on loans	$	29,633		$	29,165		$	88,208		$	88,981
Interest on taxable securities		1,720			2,017			5,136			6,513
Interest on nontaxable securities		352			365			1,071			1,104
Interest on deposits in other banks and federal funds sold		44			104			158			342

Total interest income		31,749			31,651			94,573			96,940


Interest expense
Interest on deposits		2,025			3,005			6,334			10,724
Interest on other borrowings		404			408			1,105			1,370

Total interest expense		2,429			3,413			7,439			12,094


Net interest income		29,320			28,238			87,134			84,846
Provision for loan losses		2,920			6,540			10,008			26,647

Net interest income after provision for loan losses		26,400			21,698			77,126			58,199


Noninterest income
Service charges on deposit accounts		4,948			5,121			14,480			14,277
Mortgage banking activity		5,232			3,740			14,697			8,221
Other service charges, commissions and fees		593			331			1,539			1,044
Gain on acquisitions		—			—			—			20,037
Gain (loss) on sale of securities		—			—			171			—
Other noninterest income		1,515			639			4,145			2,391

Total noninterest income		12,288			9,831			35,032			45,970


Noninterest expense
Salaries and employee benefits		14,412			13,766			41,599			37,337
Equipment and occupancy expenses		3,149			3,340			9,058			9,555
Amortization of intangible assets		346			364			1,068			996
Data processing and telecommunications expenses		3,072			2,599			8,478			7,429
Advertising and marketing expenses		434			421			1,016			1,134
Other noninterest expenses		7,336			8,320			23,102			33,228

Total noninterest expense		28,749			28,810			84,321			89,679


Income before income tax expense		9,939			2,719			27,837			14,490
Applicable income tax expense		3,262			816			9,197			4,727

Net income		6,677			1,903			18,640			9,763
Less preferred stock dividends		443			827			1,326			2,459

Net income available to common shareholders		6,234			1,076			17,314			7,304


Other comprehensive income (loss)
Unrealized holding gain (loss) arising during period on investment securities available for sale, net of tax		(4,007	)		(228	)		(8,125	)		1,017
Reclassification adjustment for losses (gains) included in earnings, net of tax		—			—			(111	)		—
Unrealized gain (loss) on cash flow hedges arising during period, net of tax		(106	)		(240	)		1,098			(976	)

Other comprehensive income (loss)		(4,113	)		(468	)		(7,138	)		41

Total comprehensive income	$	2,121		$	608		$	10,176		$	7,345


Basic earnings per share	$	0.26		$	0.05		$	0.72		$	0.31

Diluted earnings per share	$	0.26		$	0.04		$	0.71		$	0.30


Weighted average common shares outstanding
Basic		23,901			23,819			23,883			23,800

Diluted		24,316			23,973			24,298			23,954

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in thousands, except per share data)

(Unaudited)


	Nine Months Ended						Nine Months Ended
	September 30, 2013						September 30, 2012
	Shares			Amount			Shares		Amount
PREFERRED STOCK
Issued at beginning of period		28,000		$	27,662			52,000	$	50,727
Accretion of fair value of warrant		—			276			—		480


*Issued at end of period*		28,000		$	27,938			52,000	$	51,207


COMMON STOCK
Issued at beginning of period		25,154,818		$	25,155			25,087,468	$	25,087
Issuance of restricted shares		83,400			83			67,450		67
Cancellation of restricted shares		(1,000	)		(1	)		—		—
Proceeds from exercise of stock options		33,633			34			400		1


*Issued at end of period*		25,270,851		$	25,271			25,155,318	$	25,155


CAPITAL SURPLUS
Balance at beginning of period				$	164,949				$	166,639
Repurchase of warrants					—					(2,670	)
Stock-based compensation					592					278
Proceeds from exercise of stock options					376					2
Issuance of restricted shares					(83	)				(67	)
Cancellation of restricted shares					1					—


*Balance at end of period*				$	165,835				$	164,182


RETAINED EARNINGS
Balance at beginning of period				$	65,710				$	54,852
Net income					18,640					9,763
Dividends on preferred shares					(275	)				(1,979	)
Accretion of fair value of warrant					(1,050	)				(480	)


*Balance at end of period*				$	83,025				$	62,156


ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains on securities and derivatives:
Balance at beginning of period				$	6,607				$	7,296
Other comprehensive income (loss)					(7,138	)				41


*Balance at end of period*				$	(531	)			$	7,337


TREASURY STOCK
Balance at beginning of period				$	(11,066	)			$	(10,831	)
Purchase of treasury shares					(116	)				—


*Balance at end of period*				$	(11,182	)			$	(10,831	)


*TOTAL STOCKHOLDERS’ EQUITY*				$	290,356				$	299,206

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities:
Net income	$	18,640		$	9,763
Adjustments reconciling net income to net cash provided by operating activities:
Depreciation		3,683			3,585
Net (gains) losses on sale or disposal of premises and equipment		(61	)		163
Net losses or write-downs on sale of other real estate owned		5,646			9,048
Provision for loan losses		10,008			26,647
Gain on acquisitions		—			(20,037	)
Amortization of intangible assets		1,068			996
Net change in mortgage loans held for sale		(20,848	)		(17,458	)
Net gains on securities available for sale		(171	)		—
Change in other prepaids, deferrals and accruals, net		15,537			16,236

Net cash provided by operating activities		33,502			28,943


Cash flows from investing activities, net of effect of business combinations:
Net decrease in federal funds sold and interest-bearing deposits		119,778			162,170
Proceeds from maturities of securities available for sale		46,005			82,623
Purchase of securities available for sale		(61,445	)		(89,787	)
Proceeds from sales of securities available for sale		36,669			27,563
Purchase of bank owned life insurance		(30,000	)		(50,000	)
Net (increase) decrease in loans		(95,370	)		(53,660	)
Proceeds from sales of other real estate owned		55,270			57,443
Proceeds from sales of premises and equipment		1,889			409
Purchases of premises and equipment		(4,136	)		(6,642	)
Decrease in FDIC loss-share receivable		77,961			96,608
Net cash proceeds received from FDIC-assisted acquisitions		—			220,516

Net cash provided by investing activities		146,621			447,243


Cash flows from financing activities, net of effect of business combinations:
Net decrease in deposits		(181,242	)		(429,185	)
Net decrease in securities sold under agreements to repurchase		(29,865	)		(20,261	)
Proceeds from other borrowings		5,000			—
Decrease in other borrowings		—			(30,334	)
Dividends paid – preferred stock		(1,050	)		(1,979	)
Repurchase of warrants		—			(2,670	)
Purchase of treasury shares		(116	)		—
Proceeds from exercise of stock options		410			4

Net cash used in financing activities		(206,863	)		(484,425	)


Net change in cash and due from banks		(26,740	)		(8,239	)

Cash and due from banks at beginning of period		80,256			65,528

Cash and due from banks at end of period	$	53,516		$	57,289

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	7,840		$	13,699
Income taxes		11,304			52
Loans transferred to other real estate owned		37,054			61,237

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

(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 September 30, 2013, the Bank operated 57 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 the Company’s 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 September 30, 2013 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, 2012.

Newly Adopted Accounting Pronouncements

ASU 2013-11 – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”). ASU 2013-11 requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. However, if a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments are not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

ASU 2013-02 – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 requires an entity to provide information about the amounts reclassified from accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under United States generally accepted accounting principles to be reclassified to net income in its entirety in the same reporting period. For all other amounts, an entity is required to cross-reference to other disclosures that provide additional details about these amounts. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. It did not have a material effect on the Company’s results of operations, financial position or disclosures.

ASU 2012-06 – Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (“ASU 2012-06”). When an entity recognizes an indemnification asset and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs as a result of a change in the cash flows expected to be collected on the indemnified asset, ASU 2012-06 requires the entity to recognize the change in the measurement of the indemnification asset on the same basis as the indemnified assets. Any amortization of changes in value of the indemnification asset should be limited to the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets. ASU 2012-06 is effective for fiscal years beginning on or after December 15, 2012, and early adoption is permitted. It is to be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. ASU 2012-06 did not have a material effect on the Company’s results of operations, financial position or disclosures.

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 was 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 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and was 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 was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. It did not 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.

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 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 is 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 3 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.

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 Loss-Share Receivable: 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 September 30, 2013, December 31, 2012 and September 30, 2012, 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 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 at September 30, 2013 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Loans, net	$	1,983,062	$	—	$	1,561,480	$	461,213	$	2,022,693

Financial liabilities:
Deposits		2,443,421		—		2,444,244		—		2,444,244


			Fair Value Measurements at December 31, 2012 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Loans, net	$	1,934,754	$	—	$	1,406,366	$	560,226	$	1,966,592

Financial liabilities:
Deposits		2,624,663		—		2,624,883		—		2,624,883


			Fair Value Measurements at September 30, 2012 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Loans, net	$	1,960,195	$	—	$	1,393,115	$	596,671	$	1,989,786

Financial liabilities:
Deposits		2,580,117		—		2,581,465		—		2,581,465

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 September 30, 2013, December 31, 2012 and September 30, 2012 (dollars in thousands):


	Fair Value Measurements on a Recurring Basis As of September 30, 2013
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

U.S. government agencies	$	13,917	$	—	$	13,917	$	—
State, county and municipal securities		112,939		4,460		108,479		—
Corporate debt securities		9,738		—		7,738		2,000
Mortgage-backed securities		175,654		9,375		166,279		—
Mortgage loans held for sale		69,634		—		69,634		—

Total recurring assets at fair value	$	381,882	$	13,835	$	366,047	$	2,000


Derivative financial instruments	$	972	$	—	$	972	$	—

Total recurring liabilities at fair value	$	972	$	—	$	972	$	—


	Fair Value Measurements on a Recurring Basis As of December 31, 2012
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

U.S. government agencies	$	6,870	$	—	$	6,870	$	—
State, county and municipal securities		114,390		4,854		109,536		—
Corporate debt securities		10,328		—		8,328		2,000
Mortgage-backed securities		215,321		23,893		191,428		—
Mortgage loans held for sale		48,786		—		48,786		—

Total recurring assets at fair value	$	395,695	$	28,747	$	364,948	$	2,000


Derivative financial instruments	$	2,978	$	—	$	2,978	$	—

Total recurring liabilities at fair value	$	2,978	$	—	$	2,978	$	—


	Fair Value Measurements on a Recurring Basis As of September 30, 2012
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

U.S. government agencies	$	8,895	$	—	$	8,895	$	—
State, county and municipal securities		111,742		6,932		104,810		—
Corporate debt securities		11,495		—		9,495		2,000
Mortgage-backed securities		228,919		1,965		226,954		—
Mortgage loans held for sale		29,021		—		29,021		—

Total recurring assets at fair value	$	390,072	$	8,897	$	379,175	$	2,000


Derivative financial instruments	$	3,233	$	—	$	3,233	$	—

Total recurring liabilities at fair value	$	3,233	$	—	$	3,233	$	—

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 September 30, 2013, December 31, 2012 and September 30, 2012 (dollars in thousands):


	Fair Value Measurements on a Nonrecurring Basis As of September 30, 2013
	Fair Value		Level 1		Level 2		Level 3
Impaired loans carried at fair value	$	43,564	$	—	$	—	$	43,564
Other real estate owned		37,978		—		—		37,978
Covered loans		417,649		—		—		417,649
Covered other real estate owned		52,552		—		—		52,552

Total non-recurring assets at fair value	$	551,743	$	—	$	—	$	551,743


	Fair Value Measurements on a Nonrecurring Basis As of December 31, 2012
	Fair Value		Level 1		Level 2		Level 3
Impaired loans carried at fair value	$	52,514	$	—	$	—	$	52,514
Other real estate owned		39,850		—		—		39,850
Covered loans		507,712		—		—		507,712
Covered other real estate owned		88,273		—		—		88,273

Total nonrecurring assets at fair value	$	688,349	$	—	$	—	$	688,349


	Fair Value Measurements on a Nonrecurring Basis As of September 30, 2012
	Fair Value		Level 1		Level 2		Level 3
Impaired loans carried at fair value	$	50,437	$	—	$	—	$	50,437
Other real estate owned		37,325		—		—		37,325
Covered loans		546,234		—		—		546,234
Covered other real estate owned		88,895		—		—		88,895

Total nonrecurring assets at fair value	$	722,891	$	—	$	—	$	722,891

The inputs used to determine estimated fair value of impaired loans and covered loans include market conditions, loan term, underlying collateral characteristics and discount rates. The inputs used to determine fair value of other real estate owned and covered other real estate owned include market conditions, estimated marketing period or holding period, underlying collateral characteristics and discount rates.

For the nine months ended September 30, 2013 and 2012, 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 and liabilities.


Measurements	Fair Value at September 30, 2013		Valuation Technique	Unobservable Inputs	Range
(Dollars in Thousands)
Nonrecurring:
Impaired loans	$	43,564	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	4.00% - 75.00%
Other real estate owned		37,978	Third party appraisals	Collateral discounts and estimated costs to sell	10.00% - 78.00%
Covered loans		417,649	Third party appraisals and discounted cash flows	Collateral discounts Discount rate	1.75% - 75.00%
Covered real estate owned		52,552	Third party appraisals	Collateral discounts and estimated costs to sell	10.00% - 84.00%
Recurring:
Investment securities available for sale		2,000	Discounted par values	Credit quality of underlying issuer	0.00%

The transfers between the fair value hierarchy levels during the nine months ended September 30, 2013 and 2012 involved the transferring of loans to impaired loans, impaired loans to other real estate owned and covered loans to covered other real estate owned. These transfers are reflected in Ameris’ reconciliation of Level 3 assets below.


	Investment Securities Available for Sale		Impaired Loans Carried at Fair Value			Other Real Estate Owned			Covered Loans			Covered Other Real Estate Owned
	(Dollars in Thousands)
Beginning balance, January 1, 2013	$	2,000	$	52,514		$	39,850		$	507,712		$	88,273
Total gains/(losses) included in net income		—		—			(2,214	)		—			(3,432	)
Purchases, sales, issuances, and settlements, net		—		(621	)		(7,987	)		(61,338	)		(61,014	)
Transfers in to Level 3		—		—			—			—			—
Asset reclassification, within Level 3		—		(8,329	)		8,329			(28,725	)		28,725

Ending balance September 30, 2013	$	2,000	$	43,564		$	37,978		$	417,649		$	52,552


	Investment Securities Available for Sale		Impaired Loans Carried at Fair Value			Other Real Estate Owned			Covered Loans			Covered Other Real Estate Owned
	(Dollars in Thousands)
Beginning balance, January 1, 2012	$	2,000	$	70,296		$	46,680		$	571,489		$	78,617
Total gains/(losses) included in net income		—		—			(9,048	)		—			—
Purchases, sales, issuances, and settlements, net		—		—			(21,008	)		15,281			(30,258	)
Transfers in to Level 3		—		842			—			—			—
Asset reclassification, within Level 3		—		(20,701	)		20,701			(40,536	)		40,536

Ending balance September 30, 2012	$	2,000	$	50,437		$	37,325		$	546,234		$	88,895

NOTE 2 – PENDING MERGER AND ACQUISITION

On May 1, 2013, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with The Prosperity Banking Company (“Prosperity”), a bank holding company headquartered in Saint Augustine, Florida. Prosperity Bank is a wholly owned bank subsidiary of Prosperity. Prosperity Bank has a total of 12 banking locations, with the majority of the franchise concentrated in northeast Florida. As of June 30, 2013, Prosperity reported assets of $754 million, loans of $485 million and deposits of $493 million. Under the terms of the Merger Agreement, Prosperity will merge with and into Ameris, with Ameris as the surviving entity in the merger. In addition, Prosperity Bank will be merged with and into the Bank, with the Bank as the surviving entity.

Pursuant to the terms of the Merger Agreement, Prosperity shareholders will have the option to elect to receive either 3.125 shares of the Company’s common stock or $41.50 in cash for each share of Prosperity common stock they hold, subject to the requirement that no more than 50% of the outstanding shares of Prosperity may receive cash. Assuming 100% stock consideration, the transaction would be valued at approximately $15.7 million, based on the Company’s closing stock price of $13.32 on May 1, 2013 and Prosperity’s common shares outstanding of 377,960 as of that date.

Consummation of the merger is subject to customary conditions, including, among others, approval of the Merger Agreement by Prosperity’s shareholders and the receipt of required regulatory approvals. The transaction is expected to close during the fourth quarter of 2013.

NOTE 3 – INVESTMENT SECURITIES

The Company’s 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. The Company’s portfolio and investing philosophy concentrate activities in obligations where the credit risk is limited. For the small portion of the Company’s 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 September 30, 2013, December 31, 2012 and September 30, 2012 are presented below:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in Thousands)

September 30, 2013:
U. S. government agencies	$	14,945	$	—	$	(1,028	)	$	13,917
State, county and municipal securities		112,643		2,331		(2,035	)		112,939
Corporate debt securities		10,314		280		(856	)		9,738
Mortgage-backed securities		176,818		2,714		(3,878	)		175,654

Total securities	$	314,720	$	5,325	$	(7,797	)	$	312,248


December 31, 2012:
U. S. government agencies	$	6,605	$	271	$	(6	)	$	6,870
State, county and municipal securities		109,736		4,864		(210	)		114,390
Corporate debt securities		10,545		330		(547	)		10,328
Mortgage-backed securities		209,824		5,701		(204	)		215,321

Total securities	$	336,710	$	11,166	$	(967	)	$	346,909


September 30, 2012:
U. S. government agencies	$	8,606	$	289	$	—		$	8,895
State, county and municipal securities		106,541		5,345		(144	)		111,742
Corporate debt securities		11,793		262		(560	)		11,495
Mortgage-backed securities		222,641		6,562		(284	)		228,919

Total securities	$	349,581	$	12,458	$	(988	)	$	361,051

The amortized cost and fair value of available-for-sale securities at September 30, 2013 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	$	2,214	$	2,229
Due from one year to five years		36,699		37,826
Due from five to ten years		68,790		67,622
Due after ten years		30,199		28,917
Mortgage-backed securities		176,818		175,654

	$	314,720	$	312,248

Securities with a carrying value of approximately $217.3 million serve as collateral to secure public deposits and other purposes required or permitted by law at September 30, 2013.

The following table details the gross unrealized losses and fair value of securities aggregated by category and duration of continuous unrealized loss position at September 30, 2013, December 31, 2012 and September 30, 2012.


	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)
September 30, 2013:
U. S. government agencies	$	13,917	$	(1,028	)	$	—	$	—		$	13,917	$	(1,028	)
State, county and municipal securities		46,516		(1,735	)		3,807		(300	)		50,323		(2,035	)
Corporate debt securities		—		—			4,235		(856	)		4,235		(856	)
Mortgage-backed securities		90,639		(3,878	)		—		—			90,639		(3,878	)

Total temporarily impaired securities	$	151,072	$	(6,641	)	$	8,042	$	(1,156	)	$	159,114	$	(7,797	)


December 31, 2012:
U. S. government agencies	$	4,994	$	(6	)	$	—	$	—		$	4,994	$	(6	)
State, county and municipal securities		15,595		(199	)		505		(11	)		16,100		(210	)
Corporate debt securities		—		—			4,560		(547	)		4,560		(547	)
Mortgage-backed securities		23,951		(181	)		3,617		(23	)		27,568		(204	)

Total temporarily impaired securities	$	44,540	$	(386	)	$	8,682	$	(581	)	$	53,222	$	(967	)


September 30, 2012:
U. S. government agencies	$	—	$	—		$	—	$	—		$	—	$	—
State, county and municipal securities		14,653		(132	)		505		(12	)		15,158		(144	)
Corporate debt securities		—		—			5,551		(560	)		5,551		(560	)
Mortgage-backed securities		32,660		(267	)		3,434		(17	)		36,094		(284	)

Total temporarily impaired securities	$	47,313	$	(399	)	$	9,490	$	(589	)	$	56,803	$	(988	)

NOTE 4 – 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 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.

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.

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)	September 30, 2013		December 31, 2012		September 30, 2012
Commercial, financial and agricultural	$	244,991	$	174,217	$	189,374
Real estate – construction and development		132,277		114,199		125,315
Real estate – commercial and farmland		799,149		732,322		713,240
Real estate – residential		355,920		346,480		343,332
Consumer installment		36,303		40,178		43,441
Other		20,627		43,239		25,160

	$	1,589,267	$	1,450,635	$	1,439,862

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 $417.6 million, $507.7 million and $546.2 million at September 30, 2013, December 31, 2012 and September 30, 2012, 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)	September 30, 2013		December 31, 2012		September 30, 2012
Commercial, financial and agricultural	$	27,768	$	32,606	$	37,167
Real estate – construction and development		50,702		70,184		73,356
Real estate – commercial and farmland		237,086		278,506		298,903
Real estate – residential		101,146		125,056		135,154
Consumer installment		947		1,360		1,654

	$	417,649	$	507,712	$	546,234

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)	September 30, 2013		December 31, 2012		September 30, 2012
Commercial, financial and agricultural	$	4,198	$	4,138	$	4,285
Real estate – construction and development		4,229		9,281		8,201
Real estate – commercial and farmland		9,548		11,962		11,408
Real estate – residential		13,303		12,595		13,236
Consumer installment		442		909		1,095

	$	31,720	$	38,885	$	38,225

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


(Dollars in Thousands)	September 30, 2013		December 31, 2012		September 30, 2012
Commercial, financial and agricultural	$	7,872	$	10,765	$	11,938
Real estate – construction and development		16,582		20,027		21,971
Real estate – commercial and farmland		37,079		55,946		58,377
Real estate – residential		13,028		28,672		31,189
Consumer installment		350		302		426

	$	74,911	$	115,712	$	123,901

The following table presents an aging analysis of non-covered loans as of September 30, 2013, December 31, 2012 and September 30, 2012.


	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 September 30, 2013:
Commercial, financial & agricultural	$	623	$	297	$	4,107	$	5,027	$	239,964	$	244,991	$	—
Real estate – construction & development		1,200		794		4,229		6,223		126,054		132,277		—
Real estate – commercial & farmland		3,883		2,458		9,523		15,864		783,285		799,149		—
Real estate – residential		5,515		3,531		11,818		20,864		335,056		355,920		—
Consumer installment loans		497		255		327		1,079		35,224		36,303		—
Other		—		—		—		—		20,627		20,627		—

Total	$	11,718	$	7,335	$	30,004	$	49,057	$	1,540,210	$	1,589,267	$	—


	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, 2012:
Commercial, financial & agricultural	$	258	$	312	$	3,969	$	4,539	$	169,678	$	174,217	$	—
Real estate – construction & development		347		332		8,969		9,648		104,551		114,199		—
Real estate – commercial & farmland		2,867		2,296		9,544		14,707		717,615		732,322		—
Real estate – residential		7,651		2,766		10,990		21,407		325,073		346,480		—
Consumer installment loans		702		391		815		1,908		38,270		40,178		—
Other		—		—		—		—		43,239		43,239		—

Total	$	11,825	$	6,097	$	34,287	$	52,209	$	1,398,426	$	1,450,635	$	—


	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 September 30, 2012:
Commercial, financial & agricultural	$	1,192	$	639	$	3,786	$	5,617	$	183,757	$	189,374	$	—
Real estate – construction & development		518		152		8,180		8,850		116,465		125,315		—
Real estate – commercial & farmland		3,507		812		11,402		15,721		697,519		713,240		—
Real estate – residential		7,200		2,346		12,372		21,918		321,414		343,332		—
Consumer installment loans		687		284		993		1,964		41,477		43,441		—
Other		—		—		—		—		25,160		25,160		—

Total	$	13,104	$	4,233	$	36,733	$	54,070	$	1,385,792	$	1,439,862	$	—

The following table presents an aging analysis of covered loans as of September 30, 2013, December 31, 2012 and September 30, 2012.


	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 September 30, 2013:
Commercial, financial & agricultural	$	319	$	50	$	6,695	$	7,064	$	20,704	$	27,768	$	—
Real estate – construction & development		2,831		658		15,781		19,270		31,432		50,702		266
Real estate – commercial & farmland		7,365		5,350		30,503		43,218		193,868		237,086		568
Real estate – residential		2,980		1,727		11,078		15,785		85,361		101,146		823
Consumer installment loans		49		—		311		360		587		947		—

Total	$	13,544	$	7,785	$	64,368	$	85,697	$	331,952	$	417,649	$	1,657


	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, 2012:
Commercial, financial & agricultural	$	2,390	$	1,105	$	10,612	$	14,107	$	18,499	$	32,606	$	98
Real estate – construction & development		1,584		2,592		19,656		23,832		46,352		70,184		1,077
Real estate – commercial & farmland		11,451		7,373		52,570		71,394		207,112		278,506		1,347
Real estate – residential		6,066		3,396		24,976		34,438		90,618		125,056		779
Consumer installment loans		45		13		258		316		1,044		1,360		—

Total	$	21,536	$	14,479	$	108,072	$	144,087	$	363,625	$	507,712	$	3,301


	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 September 30, 2012:
Commercial, financial & agricultural	$	1,384	$	788	$	11,315	$	13,487	$	23,680	$	37,167	$	—
Real estate – construction & development		3,611		1,663		22,194		27,468		45,888		73,356		2,312
Real estate – commercial & farmland		7,072		6,559		51,382		65,013		233,890		298,903		808
Real estate – residential		4,702		3,349		28,559		36,610		98,544		135,154		1,018
Consumer installment loans		56		92		255		403		1,251		1,654		—

Total	$	16,825	$	12,451	$	113,705	$	142,981	$	403,253	$	546,234	$	4,138

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
	September 30, 2013		December 31, 2012		September 30, 2012
	(Dollars in Thousands)
Nonaccrual loans	$	31,720	$	38,885	$	38,225
Troubled debt restructurings not included above		17,024		18,744		19,893

Total impaired loans	$	48,744	$	57,629	$	58,118


Impaired loans not requiring a related allowance	$	—	$	—	$	—

Impaired loans requiring a related allowance	$	48,744	$	57,629	$	58,118

Allowance related to impaired loans	$	5,180	$	5,115	$	7,681

Average investment in impaired loans	$	53,047	$	70,209	$	73,353

Interest income recognized on impaired loans	$	468	$	495	$	376

Foregone interest income on impaired loans	$	388	$	718	$	491

The following table presents an analysis of information pertaining to non-covered impaired loans as of September 30, 2013, December 31, 2012 and September 30, 2012.


	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 September 30, 2013:
Commercial, financial & agricultural	$	7,401	$	—	$	4,719	$	4,719	$	820	$	4,900
Real estate – construction & development		14,299		—		6,155		6,155		821		8,960
Real estate – commercial & farmland		18,628		—		16,241		16,241		1,999		18,079
Real estate – residential		24,701		—		21,174		21,174		1,530		20,427
Consumer installment loans		565		—		455		455		10		681

Total	$	65,594	$	—	$	48,744	$	48,744	$	5,180	$	53,047


	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, 2012:
Commercial, financial & agricultural	$	8,024	$	—	$	4,940	$	4,940	$	743	$	4,968
Real estate – construction & development		20,316		—		11,016		11,016		910		11,706
Real estate – commercial & farmland		25,076		—		20,910		20,910		2,191		30,638
Real estate – residential		24,155		—		19,848		19,848		1,246		21,813
Consumer installment loans		1,187		—		915		915		25		1,084

Total	$	78,758	$	—	$	57,629	$	57,629	$	5,115	$	70,209


	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 September 30, 2012:
Commercial, financial & agricultural	$	8,261	$	—	$	5,089	$	5,089	$	876	$	4,974
Real estate – construction & development		19,583		—		9,682		9,682		1,253		11,879
Real estate – commercial & farmland		25,346		—		20,948		20,948		2,907		33,070
Real estate – residential		24,993		—		21,304		21,304		2,616		22,303
Consumer installment loans		1,220		—		1,095		1,095		29		1,127

Total	$	79,403	$	—	$	58,118	$	58,118	$	7,681	$	73,353

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


	As of and For the Period Ended
	September 30, 2013		December 31, 2012		September 30, 2012
	(Dollars in Thousands)
Nonaccrual loans	$	74,911	$	115,712	$	123,901
Troubled debt restructurings not included above		21,184		19,194		25,926

Total impaired loans	$	96,095	$	134,906	$	149,827


Impaired loans not requiring a related allowance	$	96,095	$	134,906	$	149,827

Impaired loans requiring a related allowance	$	—	$	—	$	—

Allowance related to impaired loans	$	—	$	—	$	—

Average investment in impaired loans	$	115,689	$	163,825	$	171,055

Interest income recognized on impaired loans	$	793	$	849	$	1,319

Foregone interest income on impaired loans	$	286	$	491	$	554

The following table presents an analysis of information pertaining to impaired covered loans as of September 30, 2013, December 31, 2012 and September 30, 2012.


	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 September 30, 2013:
Commercial, financial & agricultural	$	10,645	$	7,884	$	—	$	7,884	$	—	$	9,052
Real estate – construction & development		25,401		20,890		—		20,890		—		22,734
Real estate – commercial & farmland		51,105		43,279		—		43,279		—		54,292
Real estate – residential		28,078		23,692		—		23,692		—		29,316
Consumer installment loans		404		350		—		350		—		295

Total	$	115,633	$	96,095	$	—	$	96,095	$	—	$	115,689


	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, 2012:
Commercial, financial & agricultural	$	27,060	$	10,802	$	—	$	10,802	$	—	$	12,506
Real estate – construction & development		85,279		23,236		—		23,236		—		29,970
Real estate – commercial & farmland		159,493		64,231		—		64,231		—		78,790
Real estate – residential		63,559		36,335		—		36,335		—		42,061
Consumer installment loans		393		302		—		302		—		498

Total	$	335,784	$	134,906	$	—	$	134,906	$	—	$	163,825


	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 September 30, 2012:
Commercial, financial & agricultural	$	17,833	$	11,976	$	—	$	11,976	$	—	$	12,932
Real estate – construction & development		34,787		23,833		—		23,833		—		31,653
Real estate – commercial & farmland		98,909		72,802		—		72,802		—		82,430
Real estate – residential		54,020		40,790		—		40,790		—		43,492
Consumer installment loans		890		426		—		426		—		548

Total	$	206,439	$	149,827	$	—	$	149,827	$	—	$	171,055

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.

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 September 30, 2013.


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	$	65,033	$	—	$	278	$	420	$	7,028	$	—	$	72,759
15		20,668		5,080		147,355		56,464		1,243		—		230,810
20		89,216		37,765		421,669		142,186		19,691		20,627		731,154
23		97		7,085		10,054		13,275		218		—		30,729
25		60,407		72,942		183,371		109,604		7,034		—		433,358
30		3,019		2,264		12,089		11,427		153		—		28,952
40		6,326		7,141		24,333		22,534		936		—		61,270
50		225		—		—		10		—		—		235
60		—		—		—		—		—		—		—

Total	$	244,991	$	132,277	$	799,149	$	355,920	$	36,303	$	20,627	$	1,589,267

The following table presents the non-covered loan portfolio by risk grade as of December 31, 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	$	24,623	$	—	$	309	$	464	$	7,597	$	—	$	32,993
15		11,316		4,373		147,966		71,254		1,591		—		236,500
20		79,522		31,413		351,997		114,418		21,361		43,239		641,950
23		42		8,521		9,012		13,788		70		—		31,433
25		49,071		52,577		176,395		113,591		7,576		—		399,210
30		2,343		3,394		19,401		9,672		488		—		35,298
40		7,200		13,765		27,242		23,292		1,495		—		72,994
50		100		156		—		1		—		—		257
60		—		—		—		—		—		—		—

Total	$	174,217	$	114,199	$	732,322	$	346,480	$	40,178	$	43,239	$	1,450,635

The following table presents the non-covered loan portfolio by risk grade as of September 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	$	26,291	$	—	$	220	$	411	$	7,887	$	—	$	34,809
15		11,816		4,532		152,678		74,040		1,400		—		244,466
20		80,681		33,603		324,270		105,531		23,038		25,160		592,283
23		5		7,667		8,773		13,650		81		—		30,176
25		62,377		59,013		184,146		113,560		8,502		—		427,598
30		1,508		7,948		14,742		10,535		745		—		35,478
40		6,436		12,396		28,411		25,583		1,780		—		74,606
50		260		156		—		22		8		—		446
60		—		—		—		—		—		—		—

Total	$	189,374	$	125,315	$	713,240	$	343,332	$	43,441	$	25,160	$	1,439,862

The following table presents the covered loan portfolio by risk grade as of September 30, 2013.


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	$	—	$	—	$	—	$	—	$	—	$	—	$	—
15		—		22		1,098		641		—		—		1,761
20		2,697		11,347		34,252		22,545		208		—		71,049
23		135		1,080		16,708		2,902		51		—		20,876
25		7,609		7,360		108,886		39,632		250		—		163,737
30		1,485		5,505		24,790		9,196		14		—		40,990
40		15,842		25,388		51,352		26,230		424		—		119,236
50		—		—		—		—		—		—		—
60		—		—		—		—		—		—		—

Total	$	27,768	$	50,702	$	237,086	$	101,146	$	947	$	—	$	417,649

The following table presents the covered loan portfolio by risk grade as of December 31, 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	$	—	$	—	$	—	$	—	$	—	$	—	$	—
15		—		39		1,640		644		—		—		2,323
20		3,997		12,194		37,098		31,337		292		—		84,918
23		28		1,174		9,576		2,052		—		—		12,830
25		10,013		19,216		114,849		40,194		558		—		184,830
30		4,294		7,214		38,665		11,883		50		—		62,106
40		14,274		30,347		76,678		38,946		460		—		160,705
50		—		—		—		—		—		—		—
60		—		—		—		—		—		—		—

Total	$	32,606	$	70,184	$	278,506	$	125,056	$	1,360	$	—	$	507,712

The following table presents the covered loan portfolio by risk grade as of September 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	$	—	$	8	$	—	$	853	$	—	$	—	$	861
15		91		44		1,673		708		—		—		2,516
20		4,970		13,950		40,912		34,397		319		—		94,548
23		30		1,226		4,638		1,889		—		—		7,783
25		11,986		18,921		130,155		44,999		721		—		206,782
30		4,063		7,494		35,764		9,016		64		—		56,401
40		16,027		31,713		85,761		43,292		550		—		177,343
50		—		—		—		—		—		—		—
60		—		—		—		—		—		—		—

Total	$	37,167	$	73,356	$	298,903	$	135,154	$	1,654	$	—	$	546,234

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 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 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 that 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, approved by the Company’s Senior 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 nine months of 2013 totaling $17.0 million and loans in the first nine months of 2012 totaling $23.5 million under such parameters. In addition, the Company offers consumer loan customers an annual skip-a-pay program that is based on certain qualifying parameters and not based on financial difficulties. The Company does not treat these as troubled debt restructurings.

The following table presents the amount of troubled debt restructurings by loan class, classified separately as accrual and non-accrual at September 30, 2013, December 31, 2012 and September 30, 2012:


As of September 30, 2013	Accruing Loans			Non-Accruing Loans
		Balance			Balance
Loan class:	#	*(in thousands)*		#	*(in thousands)*
Commercial, financial & agricultural	4	$	521	3	$	533
Real estate – construction & development	8		1,926	1		29
Real estate – commercial & farmland	16		6,693	3		1,858
Real estate – residential	35		7,871	7		704
Consumer installment	1		13	2		26

Total	64	$	17,024	16	$	3,150


As of December 31, 2012	Accruing Loans			Non-Accruing Loans
		Balance			Balance
Loan class:	#	*(in thousands)*		#	*(in thousands)*
Commercial, financial & agricultural	5	$	802	—	$	—
Real estate – construction & development	5		1,735	—		—
Real estate – commercial & farmland	16		8,947	3		4,149
Real estate – residential	28		7,254	2		1,022
Consumer installment	1		6	—		—

Total	55	$	18,744	5	$	5,171


As of September 30, 2012	Accruing Loans			Non-Accruing Loans
		Balance			Balance
Loan class:	#	*(in thousands)*		#	*(in thousands)*
Commercial, financial & agricultural	5	$	804	—	$	—
Real estate – construction & development	4		1,481	—		—
Real estate – commercial & farmland	15		9,540	1		2,770
Real estate – residential	27		8,068	2		620

Total	51	$	19,893	3	$	3,390

The following table presents the amount of troubled debt restructurings by loan class, classified separately as those currently paying under restructured terms and those that have defaulted under restructured terms at September 30, 2013, December 31, 2012 and September 30, 2012:


As of September 30, 2013	Loans Currently Paying Under Restructured Terms			Loans that have Defaulted Under Restructured Terms
		Balance			Balance
Loan class:	#	*(in thousands)*		#	*(in thousands)*
Commercial, financial & agricultural	3	$	508	4	$	546
Real estate – construction & development	6		1,881	3		74
Real estate – commercial & farmland	14		6,550	5		2,001
Real estate – residential	31		7,282	11		1,293
Consumer installment	2		37	1		2

Total	56	$	16,258	24	$	3,916


As of December 31, 2012	Loans Currently Paying Under Restructured Terms			Loans that have Defaulted Under Restructured Terms
		Balance			Balance
Loan class:	#	*(in thousands)*		#	*(in thousands)*
Commercial, financial & agricultural	5	$	802	—	$	—
Real estate – construction & development	5		1,735	—		—
Real estate – commercial & farmland	16		8,947	3		4,149
Real estate – residential	28		7,254	2		1,022
Consumer installment	—		—	1		6

Total	54	$	18,738	6	$	5,177


As of September 30, 2012	Loans Currently Paying Under Restructured Terms			Loans that have Defaulted Under Restructured Terms
		Balance			Balance
Loan class:	#	*(in thousands)*		#	*(in thousands)*
Commercial, financial & agricultural	5	$	804	—	$	—
Real estate – construction & development	4		1,481	—		—
Real estate – commercial & farmland	15		9,540	1		2,770
Real estate – residential	26		8,068	3		620

Total	50	$	19,893	4	$	3,390

The following table presents the amount of troubled debt restructurings by types of concessions made, classified separately as accrual and non-accrual at September 30, 2013, December 31, 2012 and September 30, 2012:


As of September 30, 2013	Accruing Loans			Non-Accruing Loans
		Balance			Balance
Type of concession:	#	*(in thousands)*		#	*(in thousands)*
Forbearance of interest	9	$	2,135	2	$	101
Forgiveness of principal	3		1,479	1		145
Payment modification only	2		370	—		—
Rate reduction only	14		7,146	2		496
Rate reduction, forbearance of interest	18		2,878	10		2,379
Rate reduction, forbearance of principal	18		3,016	—		—
Rate reduction, payment modification	—		—	1		29

Total	64	$	17,024	16	$	3,150


As of December 31, 2012	Accruing Loans			Non-Accruing Loans
		Balance			Balance
Type of concession:	#	*(in thousands)*		#	*(in thousands)*
Forbearance of interest	2	$	1,873	—	$	—
Forgiveness of principal	3		1,518	1		372
Payment modification only	2		376	—		—
Rate reduction only	11		7,075	1		177
Rate reduction, forbearance of interest	18		4,061	2		3,420
Rate reduction, forbearance of principal	18		3,798	—		—
Rate reduction, payment modification	1		43	1		1,202

Total	55	$	18,744	5	$	5,171


As of September 30, 2012	Accruing Loans			Non-Accruing Loans
		Balance			Balance
Type of concession:	#	*(in thousands)*		#	*(in thousands)*
Forbearance of interest	2	$	1,902	—	$	—
Forgiveness of principal	3		1,516	1		369
Payment modification only	2		1,292	1		251
Rate reduction only	10		5,889	—		—
Rate reduction, forbearance of interest	15		4,371	1		2,770
Rate reduction, forbearance of principal	18		4,874	—		—
Rate reduction, payment modification	1		49	—		—

Total	51	$	19,893	3	$	3,390

The following table presents the amount of troubled debt restructurings by collateral types, classified separately as accrual and non-accrual at September 30, 2013, December 31, 2012 and September 30, 2012:


As of September 30, 2013	Accruing Loans			Non-Accruing Loans
		Balance			Balance
Collateral type:	#	*(in thousands)*		#	*(in thousands)*
Warehouse	3	$	1,065	1	$	176
Raw land	3		1,337	1		29
Agricultural land	2		380	—		—
Hotel & motel	3		2,219	—		—
Office	4		1,924	—		—
Retail, including strip centers	4		1,105	2		1,682
1-4 family residential	40		8,460	7		704
Life insurance policy	1		250	—		—
Automobile/equipment/inventory	3		36	4		509
Unsecured	1		248	1		50

Total	64	$	17,024	16	$	3,150


As of December 31, 2012	Accruing Loans			Non-Accruing Loans
		Balance			Balance
Collateral type:	#	*(in thousands)*		#	*(in thousands)*
Warehouse	3	$	1,692	1	$	177
Raw land	2		1,337	—		—
Hotel & motel	3		2,318	—		—
Office	4		2,105	1		2,770
Retail, including strip centers	6		2,833	1		1,202
1-4 family residential	31		7,651	2		1,022
Life insurance policy	1		250	—		—
Automobile/equipment/inventory	4		508	—		—
Unsecured	1		50	—		—

Total	55	$	18,744	5	$	5,171


As of September 30, 2012	Accruing Loans			Non-Accruing Loans
		Balance			Balance
Collateral type:	#	*(in thousands)*		#	*(in thousands)*
Warehouse	3	$	1,621	—	$	—
Raw land	2		1,349	—		—
Hotel & motel	3		2,362	—		—
Office	2		1,503	1		2,770
Retail, including strip centers	7		4,054	—		—
1-4 family residential	30		8,216	2		620
Inventory	1		450	—		—
Equipment	1		38	—		—
Unsecured	2		300	—		—

Total	51	$	19,893	3	$	3,390

As of September 30, 2013, December 31, 2012 and September 30, 2012, the Company had a balance of $20.2 million, $23.9 million and $23.3 million, respectively, in troubled debt restructurings. The Company has recorded $2.1 million, $1.9 million and $2.1 million in previous charge-offs on such loans at September 30, 2013, December 31, 2012 and September 30, 2012, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $412,000, $640,000 and $676,000 at September 30, 2013, December 31, 2012 and September 30, 2012, respectively. At September 30, 2013, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

Allowance for Loan Losses

The allowance for loan losses represents a reserve for inherent 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 independent auditors and 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 data such as 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 their markets, unemployment rates, the effect of weather conditions on agricultural related entities and other significant local economic events.

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, with the exception of credit card receivables and overdraft protection loans which 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. Many of the larger loans require an annual review by an independent loan officer or an independent third party loan review firm. As a result of these loan reviews, certain loans may be assigned specific reserve allocations. 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 Director of Internal Audit.

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 60 (Loss per the regulatory guidance), the uncollectible portion is charged-off.

During the nine months ended September 30, 2013, the year ended December 31, 2012 and the nine months ended September 30, 2012, the Company recorded provision for loan loss expense of $1.3 million, $2.6 million and $2.3 million, respectively, to account for losses where the initial estimate of cash flows was found to be excessive on loans acquired in FDIC-assisted transactions. These amounts are excluded from the rollforwards below but are reflected in the Company’s Consolidated Statements of Earnings and Comprehensive Income.

The following table details activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2013, the year ended December 31, 2012 and the nine months ended September 30, 2012. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.


	Commercial, financial & agricultural			Real estate - construction & development			Real estate - commercial & farmland			Real estate - residential			Consumer installment loans and Other			Total
	(Dollars in Thousands)
Balance, January 1, 2013	$	2,439		$	5,343		$	9,157		$	5,898		$	756		$	23,593
Provision for loan losses		1,011			2,127			2,632			2,966			11			8,747
Loans charged off		(1,216	)		(1,598	)		(2,873	)		(3,430	)		(576	)		(9,693	)
Recoveries of loans previously charged off		340			88			18			520			241			1,207

Balance, September 30, 2013	$	2,574		$	5,960		$	8,934		$	5,954		$	432		$	23,854


Period-end amount allocated to:
Loans individually evaluated for impairment	$	741		$	682		$	1,997		$	1,429		$	—		$	4,849
Loans collectively evaluated for impairment		1,833			5,278			6,937			4,525			432			19,005

Ending balance	$	2,574		$	5,960		$	8,934		$	5,954		$	432		$	23,854


Loans:
Individually evaluated for impairment	$	3,657		$	3,524		$	14,605		$	16,919		$	—		$	38,705
Collectively evaluated for impairment		241,334			128,753			784,544			339,001			56,930			1,550,562

Ending balance	$	244,991		$	132,277		$	799,149		$	355,920		$	56,930		$	1,589,267


	Commercial, financial & agricultural			Real estate - construction & development			Real estate - commercial & farmland			Real estate - residential			Consumer installment loans and Other			Total
	(Dollars in Thousands)
Balance, January 1, 2012	$	2,918		$	9,438		$	14,226		$	8,128		$	446		$	35,156
Provision for loan losses		815			5,245			15,000			6,267			1,124			28,451
Loans charged off		(1,451	)		(9,380	)		(20,551	)		(8,722	)		(1,059	)		(41,163	)
Recoveries of loans previously charged off		157			40			482			225			245			1,149

Balance, December 31, 2012	$	2,439		$	5,343		$	9,157		$	5,898		$	756		$	23,593


Period-end amount allocated to:
Loans individually evaluated for impairment	$	659		$	611		$	2,228		$	1,056		$	—		$	4,554
Loans collectively evaluated for impairment		1,780			4,732			6,929			4,842			756			19,039

Ending balance	$	2,439		$	5,343		$	9,157		$	5,898		$	756		$	23,593


Loans:
Individually evaluated for impairment	$	3,351		$	7,617		$	21,332		$	13,020		$	—		$	45,320
Collectively evaluated for impairment		170,866			106,582			710,990			333,460			83,417			1,405,315

Ending balance	$	174,217		$	114,199		$	732,322		$	346,480		$	83,417		$	1,450,635


	Commercial, financial & agricultural			Real estate - construction & development			Real estate - commercial & farmland			Real estate - residential			Consumer installment loans and Other			Total
	(Dollars in Thousands)
Balance, January 1, 2012	$	2,918		$	9,438		$	14,226		$	8,128		$	446		$	35,156
Provision for loan losses		677			4,954			13,087			4,936			706			24,360
Loans charged off		(889	)		(7,819	)		(18,199	)		(6,642	)		(618	)		(34,167	)
Recoveries of loans previously charged off		101			23			32			199			197			552

Balance, September 30, 2012	$	2,807		$	6,596		$	9,146		$	6,621		$	731		$	25,901


Period-end amount allocated to:
Loans individually evaluated for impairment	$	610		$	526		$	2,315		$	2,105		$	—		$	5,556
Loans collectively evaluated for impairment		2,197			6,070			6,831			4,516			731			20,345

Ending balance	$	2,807		$	6,596		$	9,146		$	6,621		$	731		$	25,901


Loans:
Individually evaluated for impairment	$	2,748		$	5,510		$	21,552		$	15,178		$	—		$	44,988
Collectively evaluated for impairment		186,626			119,805			691,688			328,154			68,601			1,394,874

Ending balance	$	189,374		$	125,315		$	713,240		$	343,332		$	68,601		$	1,439,862

NOTE 5 – ASSETS ACQUIRED IN FDIC-ASSISTED ACQUISITIONS

From October 2009 through July 2012, the Company participated in ten FDIC-assisted acquisitions whereby the Company purchased certain failed institutions out of the FDIC’s receivership. These institutions include the following:


Bank Acquired	Location:	Branches:	Date Acquired
American United Bank (“AUB”)	Lawrenceville, Ga.	1	October 23, 2009
United Security Bank (“USB”)	Sparta, Ga.	2	November 6, 2009
Satilla Community Bank (“SCB”)	St. Marys, Ga.	1	May 14, 2010
First Bank of Jacksonville (“FBJ”)	Jacksonville, Fl.	2	October 22, 2010
Tifton Banking Company (“TBC”)	Tifton, Ga.	1	November 12, 2010
Darby Bank & Trust (“DBT”)	Vidalia, Ga.	7	November 12, 2010
High Trust Bank (“HTB”)	Stockbridge, Ga.	2	July 15, 2011
One Georgia Bank (“OGB”)	Midtown Atlanta, Ga.	1	July 15, 2011
Central Bank of Georgia (“CBG”)	Ellaville, Ga.	5	February 24, 2012
Montgomery Bank & Trust (“MBT”)	Ailey, Ga.	2	July 6, 2012

The determination of the initial fair values of loans at the acquisition date and the initial fair values of the related FDIC indemnification assets involves a high degree of judgment and complexity. The carrying values of the acquired loans and the FDIC indemnification assets reflect management’s best estimate of the fair value of each of these assets as of the date of acquisition. However, the amount that the Company realizes on these assets could differ materially from the carrying values reflected in the financial statements included in this report, based upon the timing and amount of collections on the acquired loans in future periods. Because of the loss-sharing agreements with the FDIC on these assets, the Company does not expect to incur any significant losses. To the extent the actual values realized for the acquired loans are different from the estimates, the indemnification assets will generally be affected in an offsetting manner due to the loss-sharing support from the FDIC.

FASB ASC 310 – 30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310”), applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. ASC 310 prohibits carrying over or creating an allowance for loan losses upon initial recognition for loans which fall under the scope of this statement. At the acquisition dates, a majority of these loans were valued based on the liquidation value of the underlying collateral because the future cash flows are primarily based on the liquidation of underlying collateral. There was no allowance for credit losses established related to these ASC 310 loans at the acquisition dates, based on the provisions of this statement. Over the life of the acquired loans, the Company continues to estimate cash flows expected to be collected. If the expected cash flows expected to be collected increases, then the Company adjusts the amount of accretable discount recognized on a prospective basis over the loan’s remaining life. If the expected cash flows expected to be collected decreases, then the Company records a provision for loan loss in its consolidated statement of operations.

The following table summarizes components of all covered assets at September 30, 2013, December 31, 2012 and September 30, 2012 and their origin:


	Covered loans		Less: Credit risk adjustments		Less: Liquidity and rate adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC indemnification asset
As of September 30, 2013:	(Dollars in Thousands)

AUB	$	19,336	$	915	$	—	$	18,421	$	3,338	$	3	$	3,335	$	21,756	$	3,704

USB		21,168		1,665		—		19,503		3,066		139		2,927		22,430		2,796

SCB		35,555		1,902		—		33,653		5,348		429		4,919		38,572		4,020

FBJ		27,222		3,965		—		23,257		1,582		170		1,412		24,669		4,990

DBT		116,685		21,739		—		94,946		19,720		1,639		18,081		113,027		23,955

TBC		35,588		2,519		54		33,015		5,912		843		5,069		38,084		4,315

HTB		70,156		8,232		41		61,883		6,998		2,445		4,553		66,436		11,065

OGB		63,794		6,658		108		57,028		9,921		3,918		6,003		63,031		9,458

CBG		92,755		16,712		100		75,943		8,299		2,046		6,253		82,196		17,460


Total	$	482,259	$	64,307	$	303	$	417,649	$	64,184	$	11,632	$	52,552	$	470,201	$	81,763


	Covered loans		Less: Credit risk adjustments		Less: Liquidity and rate adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC indemnification asset
As of December 31, 2012:	(Dollars in Thousands)

AUB	$	27,169	$	2,481	$	—	$	24,688	$	10,636	$	102	$	10,534	$	35,222	$	2,905

USB		27,286		4,320		—		22,966		7,087		99		6,988		29,954		6,619

SCB		41,389		3,285		—		38,104		10,686		654		10,032		48,136		6,133

FBJ		32,574		6,204		27		26,343		3,260		526		2,734		29,077		6,589

DBT		169,527		41,631		207		127,689		30,395		2,160		28,235		155,924		47,012

TBC		46,796		4,979		173		41,644		11,089		1,381		9,708		51,352		8,073

HTB		90,602		16,072		52		74,478		13,980		4,954		9,026		83,504		20,020

OGB		81,908		17,127		136		64,645		9,168		4,078		5,090		69,735		16,871

CBG		124,200		36,884		161		87,155		9,046		3,120		5,926		93,081		45,502


Total	$	641,451	$	132,983	$	756	$	507,712	$	105,347	$	17,074	$	88,273	$	595,985	$	159,724

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