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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2013

OR

 

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

Commission File Number: 001-13901

 

 

 

AMERIS BANCORP

(Exact name of registrant as specified in its charter)

 

 

 

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

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

(Address of principal executive offices)

(229) 890-1111

(Registrant’s telephone number)

 

 

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

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

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

 

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

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

There were 23,898,392 shares of Common Stock outstanding as of July 30, 2013.

 

 

 

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AMERIS BANCORP

TABLE OF CONTENTS

 

				Page
PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets at June 30, 2013, December 31, 2012 and June 30, 2012			1
		Consolidated Statements of Earnings and Comprehensive Income for the Three and Six Month Periods Ended June 30, 2013 and 2012			2
		Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June  30, 2013 and 2012			3
		Consolidated Statements of Cash Flows for the Six Months Ended June 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			34
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			47
Item 4.		Controls and Procedures			47
PART II – OTHER INFORMATION
Item 1.		Legal Proceedings			48
Item 1A.		Risk Factors			48
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			48
Item 3.		Defaults Upon Senior Securities			48
Item 4.		Mine Safety Disclosures			48
Item 5.		Other Information			48
Item 6.		Exhibits			48
Signatures					49

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Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

		June 30, 2013				December 31, 2012				June 30, 2012
		(Unaudited)				(Audited)				(Unaudited)
Assets
Cash and due from banks		$	50,343			$	80,256			$	60,126
Federal funds sold and interest-bearing accounts			43,904				193,677				111,251
Investment securities available for sale, at fair value			316,168				346,909				366,980
Other investments			7,764				6,832				7,884
Mortgage loans held for sale			62,580				48,786				19,659
Loans			1,555,827				1,450,635				1,365,489
Covered loans			443,517				507,712				601,737
Less: allowance for loan losses			24,217				23,593				26,198
Loans, net			1,975,127				1,934,754				1,941,028
Other real estate owned			39,885				39,850				36,397
Covered other real estate owned			62,178				88,273				83,467
Total other real estate owned			102,063				128,123				119,864
FDIC loss-share receivable			105,513				159,724				203,801
Premises and equipment, net			70,167				75,983				75,192
Intangible assets, net			2,318				3,040				3,767
Goodwill			956				956				956
Cash value of bank owned life insurance			47,495				15,603				—
Other assets			24,277				24,409				9,803
Total assets		$	2,808,675			$	3,019,052			$	2,920,311
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing		$	475,445			$	510,751			$	429,113
Interest-bearing			1,967,658				2,113,912				2,115,559
Total deposits			2,443,103				2,624,663				2,544,672
Securities sold under agreements to repurchase			19,142				50,120				19,800
Other borrowings			—				—				3,810
Other liabilities			16,384				22,983				8,821
Subordinated deferrable interest debentures			42,269				42,269				42,269
Total liabilities			2,520,898				2,740,035				2,619,372
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			27,845				27,662				51,044
Common stock, par value $1; 100,000,000 shares authorized; 25,257,669, 25,154,818 and 25,155,318 issued			25,258				25,155				25,155
Capital surplus			165,484				164,949				166,685
Retained earnings			76,790				65,710				61,081
Accumulated other comprehensive income			3,582				6,607				7,805
Treasury stock, at cost, 1,363,342, 1,355,050 and 1,336,174 shares			(11,182	)			(11,066	)			(10,831	)
Total stockholders’ equity			287,777				279,017				300,939
Total liabilities and stockholders’ equity		$	2,808,675			$	3,019,052			$	2,920,311

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(dollars in thousands, except per share data)

(Unaudited)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2013				2012				2013				2012
Interest income
Interest and fees on loans		$	29,859			$	30,334			$	58,575			$	59,816
Interest on taxable securities			1,719				2,187				3,416				4,496
Interest on nontaxable securities			344				374				719				739
Interest on deposits in other banks and federal funds sold			29				112				114				238
Total interest income			31,951				33,007				62,824				65,289
Interest expense
Interest on deposits			2,083				3,635				4,309				7,719
Interest on other borrowings			392				491				701				962
Total interest expense			2,475				4,126				5,010				8,681
Net interest income			29,476				28,881				57,814				56,608
Provision for loan losses			4,165				7,225				7,088				20,107
Net interest income after provision for loan losses			25,311				21,656				50,726				36,501
Noninterest income
Service charges on deposit accounts			4,695				4,770				9,532				9,156
Mortgage banking activity			5,001				3,006				9,465				4,481
Other service charges, commissions and fees			617				322				946				713
Gain on acquisitions			—				—				—				20,037
Gain (loss) on sale of securities			(1	)			—				171				—
Other noninterest income			1,072				777				2,630				1,752
Total noninterest income			11,384				8,875				22,744				36,139
Noninterest expense
Salaries and employee benefits			13,381				12,125				27,187				23,571
Equipment and occupancy expenses			2,978				2,880				5,909				6,215
Amortization of intangible assets			358				412				722				632
Data processing and telecommunications expenses			2,836				2,905				5,406				4,830
Advertising and marketing expenses			327				364				582				713
Other non-interest expenses			6,808				7,937				15,766				24,908
Total noninterest expense			26,688				26,623				55,572				60,869
Income before income tax expense			10,007				3,908				17,898				11,771
Applicable income tax expense			3,329				1,413				5,935				3,911
Net income			6,678				2,495				11,963				7,860
Less preferred stock dividends			442				817				883				1,632
Net income available to common shareholders		$	6,236			$	1,678			$	11,080			$	6,228
Other comprehensive income
Unrealized holding gain (loss) arising during period on investment securities available for sale, net of tax			(3,689	)			1,934				(4,118	)			1,244
Reclassification adjustment for losses (gains) included in earnings, net of tax			1				—				(111	)			—
Unrealized gain (loss) on cash flow hedges arising during period, net of tax			995				(642	)			1,204				(735	)
Other comprehensive income (loss)			(2,693	)			1,292				(3,025	)			509
Total comprehensive income		$	3,985			$	3,787			$	8,938			$	8,369
Basic and diluted earnings per share		$	0.26			$	0.07			$	0.46			$	0.26
Weighted average common shares outstanding
Basic			23,879				23,819				23,873				23,791
Diluted			24,288				23,973				24,282				23,945

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in thousands, except per share data)

(Unaudited)

 

		Six Months Ended June 30, 2013								Six Months Ended June 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			—				183				—				317
Issued at end of period			28,000			$	27,845				52,000			$	51,044
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			20,451				21				400				1
Issued at end of period			25,257,669			$	25,258				25,155,318			$	25,155
CAPITAL SURPLUS
Balance at beginning of period						$	164,949							$	166,639
Stock-based compensation							395								111
Proceeds from exercise of stock options							222								2
Issuance of restricted shares							(83	)							(67	)
Cancellation of restricted shares							1								—
Balance at end of period						$	165,484							$	166,685
RETAINED EARNINGS
Balance at beginning of period						$	65,710							$	54,852
Net income							11,963								7,860
Dividends on preferred shares							(700	)							(1,314	)
Accretion of fair value of warrant							(183	)							(317	)
Balance at end of period						$	76,790							$	61,081
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)							(3,025	)							509
Balance at end of period						$	3,582							$	7,805
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						$	287,777							$	300,939

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

 

		Six Months Ended June 30,
		2013				2012
Cash flows from operating activities:
Net income		$	11,963			$	7,860
Adjustments reconciling net income to net cash provided by operating activities:
Depreciation			2,468				2,331
Net gains on sale or disposal of premises and equipment			(221	)			(1	)
Net losses or write-downs on sale of other real estate owned			3,599				8,065
Provision for loan losses			7,088				20,107
Gain on acquisitions			—				(20,037	)
Amortization of intangible assets			722				632
Net change in mortgage loans held for sale			(13,794	)			(8,096	)
Net gains on securities available for sale			(171	)			—
Change in other prepaids, deferrals and accruals, net			12,040				14,163
Net cash provided by operating activities			23,694				25,024
Cash flows from investing activities, net of effect of business combinations:
Net increase in federal funds sold and interest-bearing deposits			149,773				117,791
Proceeds from maturities of securities available for sale			33,857				52,737
Purchase of securities available for sale			(41,722	)			(63,757	)
Proceeds from sales of securities available for sale			31,340				28,923
Purchase of bank owned life insurance			(30,000	)			—
Net (increase)/decrease in loans			(76,300	)			1,691
Proceeds from sales of other real estate owned			38,534				33,920
Proceeds from sales of premises and equipment			1,928				346
Purchases of premises and equipment			(2,117	)			(4,744	)
Decrease in FDIC loss-share receivable			54,211				91,247
Net cash proceeds received from FDIC-assisted acquisitions			—				65,050
Net cash provided by investing activities			159,504				323,204
Cash flows from financing activities, net of effect of business combinations:
Net decrease in deposits			(181,560	)			(307,930	)
Net decrease in securities sold under agreements to repurchase			(30,978	)			(17,865	)
Decrease in other borrowings			—				(26,524	)
Dividends paid – preferred stock			(700	)			(1,314	)
Purchase of treasury shares			(116	)			—
Proceeds from exercise of stock options			243				3
Net cash used in financing activities			(213,111	)			(353,630	)
Net decrease in cash and due from banks			(29,913	)			(5,402	)
Cash and due from banks at beginning of period			80,256				65,528
Cash and due from banks at end of period		$	50,343			$	60,126
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid/(received) during the period for:
Interest		$	5,371			$	9,928
Income taxes		$	8,356			$	48
Loans transferred to other real estate owned		$	28,839			$	30,375

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 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 June 30, 2013, the Bank operated 56 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 June 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.

 

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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 (“IRLCs”) with borrowers. The mark to market adjustments related to loans held-for-sale and the associated economic hedges are captured in mortgage banking activities.

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

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

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

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

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments and other accounts recorded based on their fair value:

Cash and Due From Banks, Federal Funds Sold and Interest-Bearing Accounts: The carrying amount of cash and due from banks, federal funds sold and interest-bearing accounts approximates fair value.

 

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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.

 

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

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

Although the Company has determined that the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself or the counterparty. However, as of June 30, 2013, December 31, 2012 and June 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 June 30, 2013  Using:
		Carrying Amount				Level 1				Level 2				Level 3				Total
		(Dollars in Thousands)
Financial assets:
Loans, net		$	1,975,127			$	—			$	1,512,681			$	488,271			$	2,000,952
Financial liabilities:
Deposits			2,443,103				—				2,444,263				—				2,444,263

 

						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 June 30, 2012  Using:
		Carrying Amount				Level 1				Level 2				Level 3				Total
		(Dollars in Thousands)
Financial assets:
Loans, net		$	1,941,028			$	—			$	1,313,527			$	662,014			$	1,975,541
Financial liabilities:
Deposits			2,544,672				—				2,546,740				—				2,546,740
Other borrowings			3,810				3,835				—				—				3,835

 

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The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of June 30, 2013, December 31, 2012 and June 30, 2012 (dollars in thousands):

 

		Fair Value Measurements on a Recurring Basis As of June 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		$	14,335			$	—			$	14,335			$	—
State, county and municipal securities			112,759				2,447				110,312				—
Corporate debt securities			10,090				—				8,090				2,000
Mortgage-backed securities			178,984				—				178,984				—
Mortgage loans held for sale			62,580				—				62,580				—
Total recurring assets at fair value		$	378,748			$	2,447			$	374,301			$	2,000
Derivative financial instruments		$	916			$	—			$	916			$	—
Total recurring liabilities at fair value		$	916			$	—			$	916			$	—

 

		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 June 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		$	8,898			$	—			$	8,898			$	—
State, county and municipal securities			100,327				5,432				94,895				—
Corporate debt securities			11,506				250				9,256				2,000
Mortgage-backed securities			246,249				5,086				241,163				—
Mortgage loans held for sale			19,659				—				19,659				—
Total recurring assets at fair value		$	386,639			$	10,768			$	373,871			$	2,000
Derivative financial instruments		$	2,970			$	—			$	2,970			$	—
Total recurring liabilities at fair value		$	2,970			$	—			$	2,970			$	—

 

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The following table is a presentation of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy as of June 30, 2013, December 31, 2012 and June 30, 2012 (dollars in thousands):

 

		Fair Value Measurements on a Nonrecurring Basis As of June 30, 2013
		Fair Value				Level 1				Level 2				Level 3
Impaired loans carried at fair value		$	44,754			$	—			$	—			$	44,754
Other real estate owned			39,885				—				—				39,885
Covered loans			443,517				—				—				443,517
Covered other real estate owned			62,178				—				—				62,178
Total non-recurring assets at fair value		$	590,334			$	—			$	—			$	590,334

 

		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 June 30, 2012
		Fair Value				Level 1				Level 2				Level 3
Impaired loans carried at fair value		$	60,277			$	—			$	—			$	60,277
Other real estate owned			40,018				—				—				40,018
Covered loans			601,737				—				—				601,737
Covered other real estate owned			83,467				—				—				83,467
Total nonrecurring assets at fair value		$	785,499			$	—			$	—			$	785,499

Below is the Company’s reconciliation of Level 3 assets as of June 30, 2013.

 

		Investment Securities Available for Sale				Impaired Loans Carried at Fair Value				Other Real Estate Owned				Covered Loans				Covered Other Real Estate Owned
Beginning balance January 1, 2013		$	2,000			$	52,514			$	39,850			$	507,712			$	88,273
Total gains/(losses) included in net income			—				—				(409	)			—				(3,191	)
Purchases, sales, issuances, and settlements, net			—				(2,196	)			(5,120	)			(40,921	)			(46,178	)
Transfers in or out of Level 3			—				(5,564	)			5,564				(23,274	)			23,274
Ending balance June 30, 2013		$	2,000			$	44,754			$	39,885			$	443,517			$	62,178

 

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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 December 31, 2012, Prosperity reported assets of $742 million, loans of $464 million and deposits of $478 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 third or 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 June 30, 2013, December 31, 2012 and June 30, 2012 are presented below:

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(Dollars in Thousands)
June 30, 2013:
U.S. government agencies		$	14,944			$	—			$	(609	)		$	14,335
State, county and municipal securities			109,793				3,708				(742	)			112,759
Corporate debt securities			10,543				311				(764	)			10,090
Mortgage-backed securities			177,196				3,824				(2,036	)			178,984
Total securities		$	312,476			$	7,843			$	(4,151	)		$	316,168
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
June 30, 2012:
U.S. government agencies		$	8,602			$	296			$	—			$	8,898
State, county and municipal securities			95,354				5,047				(74	)			100,327
Corporate debt securities			11,792				231				(517	)			11,506
Mortgage-backed securities			239,412				7,032				(195	)			246,249
Total securities		$	355,160			$	12,606			$	(786	)		$	366,980

 

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The amortized cost and fair value of available-for-sale securities at June 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		$	3,026			$	3,029
Due from one year to five years			37,087				38,668
Due from five to ten years			64,362				64,876
Due after ten years			30,805				30,611
Mortgage-backed securities			177,196				178,984
		$	312,476			$	316,168

Securities with a carrying value of approximately $224.5 million serve as collateral to secure public deposits and other purposes required or permitted by law at June 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 June 30, 2013, December 31, 2012 and June 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)
June 30, 2013:
U.S. government agencies		$	14,335			$	(609	)		$	—			$	—			$	14,335			$	(609	)
State, county and municipal securities			36,268				(726	)			497				(16	)			36,765				(742	)
Corporate debt securities			—				—				4,333				(764	)			4,333				(764	)
Mortgage-backed securities			68,031				(2,036	)			925				—				68,956				(2,036	)
Total temporarily impaired securities		$	118,634			$	(3,371	)		$	5,755			$	(780	)		$	124,389			$	(4,151	)
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	)
June 30, 2012:
U.S. government agencies		$	—			$	—			$	—			$	—			$	—			$	—
State, county and municipal securities			10,342				(74	)			—				—				10,342				(74	)
Corporate debt securities			—				—				6,562				(517	)			6,562				(517	)
Mortgage-backed securities			31,680				(167	)			5,040				(28	)			36,720				(195	)
Total temporarily impaired securities		$	42,022			$	(241	)		$	11,602			$	(545	)		$	53,624			$	(786	)

 

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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)		June 30, 2013				December 31, 2012				June 30, 2012
Commercial, financial and agricultural		$	208,424			$	174,217			$	174,903
Real estate – construction and development			134,607				114,199				124,556
Real estate – commercial and farmland			788,654				732,322				675,404
Real estate – residential			357,685				346,480				332,124
Consumer installment			36,923				40,178				41,431
Other			29,534				43,239				17,071
		$	1,555,827			$	1,450,635			$	1,365,489

 

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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 $443.5 million, $507.7 million and $601.7 million at June 30, 2013, December 31, 2012 and June 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)		June 30, 2013				December 31, 2012				June 30, 2012
Commercial, financial and agricultural		$	27,371			$	32,606			$	41,372
Real estate – construction and development			52,972				70,184				83,991
Real estate – commercial and farmland			255,102				278,506				322,393
Real estate – residential			107,107				125,056				150,683
Consumer installment			965				1,360				3,298
		$	443,517			$	507,712			$	601,737

Nonaccrual and Past Due Loans

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged to interest income. Interest on loans that are classified as non-accrual is recognized when received. Past due loans are loans whose principal or interest is past due 90 days or more. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the original contractual terms.

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

 

(Dollars in Thousands)		June 30, 2013				December 31, 2012				June 30, 2012
Commercial, financial and agricultural		$	4,326			$	4,138			$	4,968
Real estate – construction and development			5,448				9,281				8,979
Real estate – commercial and farmland			8,963				11,962				13,728
Real estate – residential			12,423				12,595				15,542
Consumer installment			651				909				1,204
		$	31,811			$	38,885			$	44,421

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

 

(Dollars in Thousands)		June 30, 2013				December 31, 2012				June 30, 2012
Commercial, financial and agricultural		$	8,729			$	10,765			$	13,406
Real estate – construction and development			17,039				20,027				28,225
Real estate – commercial and farmland			47,427				55,946				71,271
Real estate – residential			15,459				28,672				37,669
Consumer installment			285				302				654
		$	88,939			$	115,712			$	151,225

 

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The following table presents an aging analysis of non-covered loans as of June 30, 2013, December 31, 2012 and June 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 June 30, 2013:
Commercial, financial & agricultural		$	1,449			$	502			$	4,013			$	5,964			$	202,460			$	208,424			$	—
Real estate – construction & development			1,638				104				5,418				7,160				127,447				134,607				—
Real estate – commercial & farmland			5,392				1,580				5,333				12,305				776,349				788,654				—
Real estate – residential			4,735				5,256				11,745				21,736				335,949				357,685				—
Consumer installment loans			432				175				548				1,155				35,768				36,923				—
Other			—				—				—				—				29,534				29,534				—
Total		$	13,646			$	7,617			$	27,057			$	48,320			$	1,507,507			$	1,555,827			$	—

 

		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 June 30, 2012:
Commercial, financial & agricultural		$	531			$	701			$	4,371			$	5,603			$	169,300			$	174,903			$	—
Real estate – construction & development			1,986				2,119				7,855				11,960				112,596				124,556				—
Real estate – commercial & farmland			5,282				6,930				8,597				20,809				654,595				675,404				—
Real estate – residential			5,665				3,885				14,782				24,332				307,792				332,124				—
Consumer installment loans			545				221				1,117				1,883				39,548				41,431				1
Other			—				—				—				—				17,071				17,071				—
Total		$	14,009			$	13,856			$	36,722			$	64,587			$	1,300,902			$	1,365,489			$	1

 

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The following table presents an aging analysis of covered loans as of June 30, 2013, December 31, 2012 and June 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 June 30, 2013:
Commercial, financial & agricultural		$	529			$	441			$	7,333			$	8,303			$	19,068			$	27,371			$	63
Real estate – construction & development			2,672				743				15,911				19,326				33,646				52,972				348
Real estate – commercial & farmland			4,020				3,929				41,250				49,199				205,903				255,102				636
Real estate – residential			6,283				772				12,155				19,210				87,897				107,107				60
Consumer installment loans			68				6				255				329				636				965				—
Total		$	13,572			$	5,891			$	76,904			$	96,367			$	347,150			$	443,517			$	1,107

 

		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 June 30, 2012:
Commercial, financial & agricultural		$	851			$	754			$	12,703			$	14,308			$	27,064			$	41,372			$	298
Real estate – construction & development			2,688				3,007				25,021				30,716				53,275				83,991				—
Real estate – commercial & farmland			12,452				7,656				60,879				80,987				241,406				322,393				891
Real estate – residential			5,366				3,180				31,607				40,153				110,530				150,683				78
Consumer installment loans			70				40				430				540				2,758				3,298				—
Total		$	21,427			$	14,637			$	130,640			$	166,704			$	435,033			$	601,737			$	1,267

 

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Impaired Loans

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. When determining if the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considers the borrower’s capacity to pay, which includes such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. Impaired loans include loans on nonaccrual status and troubled debt restructurings. The Company individually assesses for impairment all nonaccrual loans greater than $200,000 and rated substandard or worse and all troubled debt restructurings greater than $100,000. If a loan is deemed impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.

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

 

		As of and For the Period Ended
		June 30, 2013				December 31, 2012				June 30, 2012
		(Dollars in Thousands)
Nonaccrual loans		$	31,811			$	38,885			$	44,421
Troubled debt restructurings not included above			18,015				18,744				22,970
Total impaired loans		$	49,826			$	57,629			$	67,391
Impaired loans not requiring a related allowance		$	—			$	—			$	—
Impaired loans requiring a related allowance		$	49,826			$	57,629			$	67,391
Allowance related to impaired loans		$	5,072			$	5,115			$	7,136
Average investment in impaired loans		$	54,481			$	70,209			$	78,432
Interest income recognized on impaired loans		$	451			$	495			$	153
Foregone interest income on impaired loans		$	172			$	718			$	332

The following table presents an analysis of information pertaining to non-covered impaired loans as of June 30, 2013, December 31, 2012 and June 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 June 30, 2013:
Commercial, financial & agricultural		$	7,723			$	—			$	5,384			$	5,384			$	1,018			$	4,960
Real estate – construction & development			15,324				—				7,394				7,394				687				9,894
Real estate – commercial & farmland			19,759				—				16,491				16,491				1,657				18,692
Real estate – residential			23,373				—				19,893				19,893				1,692				20,178
Consumer installment loans			808				—				664				664				18				757
Total		$	66,987			$	—			$	49,826			$	49,826			$	5,072			$	54,481

 

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		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of December 31, 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 June 30, 2012:
Commercial, financial & agricultural		$	8,116			$	—			$	4,968			$	4,968			$	692			$	4,936
Real estate – construction & development			18,805				—				10,184				10,184				1,070				12,611
Real estate – commercial & farmland			32,265				—				27,021				27,021				2,081				37,111
Real estate – residential			27,069				—				24,014				24,014				3,254				22,637
Consumer installment loans			1,331				—				1,204				1,204				39				1,137
Total		$	87,586			$	—			$	67,391			$	67,391			$	7,136			$	78,432

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

 

		As of and For the Period Ended
		June 30, 2013				December 31, 2012				June 30, 2012
		(Dollars in Thousands)
Nonaccrual loans		$	88,939			$	115,712			$	151,225
Troubled debt restructurings not included above			22,709				19,194				14,842
Total impaired loans		$	111,648			$	134,906			$	166,067
Impaired loans not requiring a related allowance		$	111,648			$	134,906			$	166,067
Impaired loans requiring a related allowance		$	—			$	—			$	—
Allowance related to impaired loans		$	—			$	—			$	—
Average investment in impaired loans		$	122,220			$	163,825			$	178,130
Interest income recognized on impaired loans		$	784			$	849			$	628
Foregone interest income on impaired loans		$	242			$	491			$	482

 

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The following table presents an analysis of information pertaining to impaired covered loans as of June 30, 2013, December 31, 2012 and June 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 June 30, 2013:
Commercial, financial & agricultural		$	12,150			$	8,769			$	—			$	8,769			$	—			$	9,442
Real estate – construction & development			28,494				22,830				—				22,830				—				23,348
Real estate – commercial & farmland			65,516				53,837				—				53,837				—				57,962
Real estate – residential			31,535				25,927				—				25,927				—				31,191
Consumer installment loans			340				285				—				285				—				277
Total		$	138,035			$	111,648			$	—			$	111,648			$	—			$	122,220
		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 June 30, 2012:
Commercial, financial & agricultural		$	22,616			$	13,464			$	—			$	13,464			$	—			$	13,250
Real estate – construction & development			46,439				30,586				—				30,586				—				34,260
Real estate – commercial & farmland			110,388				81,330				—				81,330				—				85,639
Real estate – residential			58,645				40,033				—				40,033				—				44,393
Consumer installment loans			1,034				654				—				654				—				588
Total		$	239,122			$	166,067			$	—			$	166,067			$	—			$	178,130

Credit Quality Indicators

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

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

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

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

Grade 23 - Performing, Under-Collateralized Credit - This grade is assigned to loans that are currently performing and supported by adequate financial information that reflects repayment capacity but exhibits a loan-to-value ratio greater than 110%, based on a documented collateral valuation.

 

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Grade 25 - Minimum Acceptable Credit - This grade includes loans which exhibit all the characteristics of a Satisfactory Credit, but warrant more than normal level of banker supervision due to (i) circumstances which elevate the risks of performance (such as start-up operations, untested management, heavy leverage, interim losses); (ii) adverse, extraordinary events that have affected, or could affect, the borrower’s cash flow, financial condition, ability to continue operating profitability or refinancing (such as death of principal, fire, divorce); (iii) loans that require more than the normal servicing requirements (such as any type of construction financing, acquisition and development loans, accounts receivable or inventory loans and floor plan loans); (iv) existing technical exceptions which raise some doubts about the Bank’s perfection in its collateral position or the continued financial capacity of the borrower; or (v) improvements in formerly criticized borrowers, which may warrant banker supervision.

Grade 30 - Other Asset Especially Mentioned - This grade includes loans that exhibit potential weaknesses that deserve management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date.

Grade 40 - Substandard - This grade represents loans which are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. These weaknesses may be characterized by past due performance, operating losses or questionable collateral values.

Grade 50 - Doubtful - This grade includes loans which exhibit all of the characteristics of a substandard loan with the added provision that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable or improbable.

Grade 60 - Loss - This grade is assigned to loans which are considered uncollectible and of such little value that their continuance as active assets of the Bank is not warranted. This classification does not mean that the loss has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing it off.

The following table presents the non-covered loan portfolio by risk grade as of June 30, 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		$	37,173			$	—			$	298			$	498			$	6,883			$	—			$	44,852
15			17,783				4,934				154,369				63,078				1,527				—				241,691
20			82,636				36,654				402,677				137,518				19,586				29,534				708,605
23			108				6,878				9,575				13,104				165				—				29,830
25			60,981				75,273				189,109				110,244				7,497				—				443,104
30			3,154				3,183				12,104				10,666				159				—				29,266
40			5,991				7,685				20,522				22,577				1,104				—				57,879
50			598				—				—				—				—				—				598
60			—				—				—				—				2				—				2
Total		$	208,424			$	134,607			$	788,654			$	357,685			$	36,923			$	29,534			$	1,555,827

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

 

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

 

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

The following table presents the covered loan portfolio by risk grade as of June 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			—				27				1,571				634				—				—				2,232
20			2,815				10,533				36,360				25,277				231				—				75,216
23			69				1,666				11,323				2,671				—				—				15,729
25			8,469				11,574				118,867				41,408				348				—				180,666
30			1,999				3,505				26,144				9,175				25				—				40,848
40			14,019				25,667				60,837				27,942				361				—				128,826
50			—				—				—				—				—				—				—
60			—				—				—				—				—				—				—
Total		$	27,371			$	52,972			$	255,102			$	107,107			$	965			$	—			$	443,517

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				—