Form 10-Q
Table of Contents

 

 

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, 2014

OR

 

¨ 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):

 

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 26,738,438 shares of Common Stock outstanding as of July 30, 2014.

 

 

 


Table of Contents

AMERIS BANCORP

TABLE OF CONTENTS

 

         Page  

PART I – FINANCIAL INFORMATION

  

Item 1.

 

Financial Statements.

  
 

Consolidated Balance Sheets at June 30, 2014, December 31, 2013 and June 30, 2013

     1   
 

Consolidated Statements of Earnings and Comprehensive Income for the Three and Six Month Periods Ended June 30, 2014 and 2013

     2   
 

Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June  30, 2014 and 2013

     3   
 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013

     4   
 

Notes to Consolidated Financial Statements

     6   

Item 2.

 

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

     48   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk.

     63   

Item 4.

 

Controls and Procedures.

     63   

PART II – OTHER INFORMATION

  

Item 1.

 

Legal Proceedings.

     64   

Item 1A.

 

Risk Factors.

     64   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

     64   

Item 3.

 

Defaults Upon Senior Securities.

     64   

Item 4.

 

Mine Safety Disclosures.

     64   

Item 5.

 

Other Information.

     64   

Item 6.

 

Exhibits.

     64   

Signatures

     64   


Table of Contents

Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share data)

 

     June 30,
2014
    December 31,
2013
    June 30,
2013
 
     (Unaudited)     (Audited)     (Unaudited)  

Assets

      

Cash and due from banks

   $ 80,986      $ 62,955      $ 50,343   

Federal funds sold and interest-bearing accounts

     44,800        204,984        43,904   

Investment securities available for sale, at fair value

     535,630        486,235        316,168   

Other investments

     10,971        16,828        7,764   

Mortgage loans held for sale

     81,491        67,278        62,580   

Loans, net of unearned income

     1,770,059        1,618,454        1,555,827   

Purchased loans not covered by FDIC loss share agreements (“purchased non-covered loans”)

     702,131        448,753        —     

Purchased loans covered by FDIC loss share agreements (“covered loans”)

     331,250        390,237        443,517   

Less: allowance for loan losses related to non-purchased loans

     (22,254     (22,377     (24,217
  

 

 

   

 

 

   

 

 

 

Loans, net

     2,781,186        2,435,067        1,975,127   
  

 

 

   

 

 

   

 

 

 

Other real estate owned, net

     35,373        33,351        39,885   

Purchased, non-covered other real estate owned, net

     16,598        4,276        —     

Covered other real estate owned, net

     38,426        45,893        62,178   
  

 

 

   

 

 

   

 

 

 

Total other real estate owned, net

     90,397        83,520        102,063   
  

 

 

   

 

 

   

 

 

 

Premises and equipment, net

     99,495        103,188        70,167   

FDIC loss-share receivable

     49,180        65,441        105,513   

Other intangible assets, net

     9,812        6,009        2,318   

Goodwill

     58,903        35,049        956   

Cash value of bank owned life insurance

     57,864        49,432        47,495   

Other assets

     72,420        51,663        24,277   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 3,973,135      $ 3,667,649      $ 2,808,675   
  

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

      

Liabilities

      

Deposits:

      

Noninterest-bearing

   $ 790,798      $ 668,531      $ 475,445   

Interest-bearing

     2,598,237        2,330,700        1,967,658   
  

 

 

   

 

 

   

 

 

 

Total deposits

     3,389,035        2,999,231        2,443,103   

Securities sold under agreements to repurchase

     51,109        83,516        19,142   

Other borrowings

     100,293        194,572        —     

Other liabilities

     24,457        18,165        16,384   

Subordinated deferrable interest debentures

     64,842        55,466        42,269   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     3,629,736        3,350,950        2,520,898   
  

 

 

   

 

 

   

 

 

 

Stockholders’ Equity

      

Preferred stock, stated value $1,000; 5,000,000 shares authorized; 0, 28,000 and 28,000 shares issued and outstanding

     —          28,000        27,845   

Common stock, par value $1; 100,000,000 shares authorized; 28,155,317; 26,461,769 and 25,257,669 issued

     28,155        26,462        25,258   

Capital surplus

     223,888        189,722        165,484   

Retained earnings

     98,847        83,991        76,790   

Accumulated other comprehensive income (loss)

     4,123        (294     3,582   

Treasury stock, at cost, 1,383,496; 1,363,342 and 1,363,342 shares

     (11,614     (11,182     (11,182
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     343,399        316,699        287,777   
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 3,973,135      $ 3,667,649      $ 2,808,675   
  

 

 

   

 

 

   

 

 

 

See notes to unaudited consolidated financial statements.

 

1


Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(amounts in thousands, except per share data)

(Unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

Interest income

        

Interest and fees on loans

   $ 35,297      $ 29,859      $ 69,766      $ 58,575   

Interest on taxable securities

     2,953        1,719        5,938        3,416   

Interest on nontaxable securities

     312        344        647        719   

Interest on deposits in other banks and federal funds sold

     45        29        129        114   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     38,607        31,951        76,480        62,824   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

        

Interest on deposits

     2,205        2,083        4,388        4,309   

Interest on other borrowings

     1,138        392        2,344        701   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     3,343        2,475        6,732        5,010   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     35,264        29,476        69,748        57,814   

Provision for loan losses

     1,365        4,165        3,091        7,088   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     33,899        25,311        66,657        50,726   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest income

        

Service charges on deposit accounts

     5,847        4,695        11,433        9,532   

Mortgage banking activity

     7,002        5,001        12,166        9,465   

Other service charges, commissions and fees

     662        617        1,314        946   

Gain (loss) on sale of securities

     —          (1     6        171   

Other noninterest income

     2,308        1,072        3,654        2,630   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     15,819        11,384        28,573        22,744   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest expense

        

Salaries and employee benefits

     16,942        13,381        34,336        27,187   

Occupancy and equipment

     4,071        2,978        8,135        5,909   

Advertising and marketing expenses

     718        327        1,428        582   

Amortization of intangible assets

     437        358        970        722   

Data processing and telecommunications expenses

     3,940        2,836        7,394        5,406   

Other noninterest expenses

     11,210        6,808        18,294        15,766   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     37,318        26,688        70,557        55,572   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

     12,400        10,007        24,673        17,898   

Income tax expense

     4,270        3,329        8,193        5,935   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     8,130        6,678        16,480        11,963   

Less preferred stock dividends and discount accretion

     —          442        286        883   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common shareholders

   $ 8,130      $ 6,236      $ 16,194      $ 11,080   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

        

Unrealized holding gain (loss) arising during period on investment securities available for sale, net of tax

     2,121        (3,689     5,059        (4,118

Reclassification adjustment for losses (gains) included in earnings, net of tax

     —          1        (4     (111

Unrealized gain (loss) on cash flow hedges arising during period, net of tax

     (372     995        (638     1,204   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     1,749        (2,693     4,417        (3,025
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

   $ 9,879      $ 3,985      $ 20,897      $ 8,938   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per common share

   $ 0.32      $ 0.26      $ 0.64      $ 0.46   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per common share

   $ 0.32      $ 0.26      $ 0.63      $ 0.46   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per common share

   $ 0.05      $ —        $ 0.05      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

        

Basic

     25,181        23,879        25,163        23,873   

Diluted

     25,572        24,288        25,552        24,282   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited consolidated financial statements.

 

2


Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands, except per share data)

(Unaudited)

 

     Six Months Ended     Six Months Ended  
     June 30, 2014     June 30, 2013  
     Shares     Amount     Shares     Amount  

PREFERRED STOCK

        

Issued at beginning of period

     28,000      $ 28,000        28,000      $ 27,662   

Repurchase of preferred stock

     (28,000     (28,000     —         183   

Accretion of fair value of warrant

     —         —          —         183   
  

 

 

   

 

 

   

 

 

   

 

 

 

Issued at end of period

     —        $ —          28,000      $ 27,845   

COMMON STOCK

        

Issued at beginning of period

     26,461,769      $ 26,462        25,154,818      $ 25,155   

Issuance of restricted shares

     68,047        68        83,400        83   

Issuance of common stock

     1,598,987        1,599        —          —     

Cancellation of restricted shares

     —          —          (1,000     (1

Proceeds from exercise of stock options

     26,514        26        20,451        21   
  

 

 

   

 

 

   

 

 

   

 

 

 

Issued at end of period

     28,155,317      $ 28,155        25,257,669      $ 25,258   

CAPITAL SURPLUS

        

Balance at beginning of period

     $ 189,722        $ 164,949   

Stock-based compensation

       1,012          395   

Issuance of common stock

       32,875          —     

Proceeds from exercise of stock options

       347          222   

Issuance of restricted shares

       (68       (83

Cancellation of restricted shares

       —            1   
    

 

 

     

 

 

 

Balance at end of period

     $ 223,888        $ 165,484   

RETAINED EARNINGS

        

Balance at beginning of period

     $ 83,991        $ 65,710   

Net income

       16,480          11,963   

Cash dividends declared, $0.05 per share

       (1,338       —     

Dividends on preferred shares

       (286       (700

Accretion of fair value of warrant

       —            (183
    

 

 

     

 

 

 

Balance at end of period

     $ 98,847        $ 76,790   

ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX

        

Unrealized gains on securities and derivatives:

        

Balance at beginning of period

     $ (294     $ 6,607   

Other comprehensive income (loss)

       4,417          (3,025
    

 

 

     

 

 

 

Balance at end of period

     $ 4,123        $ 3,582   

TREASURY STOCK

        

Balance at beginning of period

     (1,363,342   $ (11,182     (1,355,050   $ (11,066

Purchase of treasury shares

     (20,154     (432     (8,292     (116
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

     (1,383,496   $ (11,614     (1,363,342   $ (11,182
    

 

 

     

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

     $ 343,399        $ 287,777   
    

 

 

     

 

 

 

See notes to unaudited consolidated financial statements.

 

3


Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

 

     Six Months Ended
June 30,
 
     2014     2013  

Cash flows from operating activities:

    

Net income

   $ 16,480      $ 11,963   

Adjustments reconciling net income to net cash provided by operating activities:

    

Depreciation

     3,709        2,468   

Stock based compensation expense

     1,012        395   

Net (gains)/losses on sale or disposal of premises and equipment

     1        (221

Net losses or write-downs on sale of other real estate owned

     1,985        3,599   

Provision for loan losses

     3,091        7,088   

Accretion of covered loans

     (15,432     (25,841

Accretion of purchased non-covered loans

     (3,153     —     

Accretion of FDIC loss-share receivable, net of amortization of FDIC clawback payable

     5,685        8,607   

Increase in cash surrender value of BOLI

     (620     (565

Amortization of intangible assets

     970        722   

Net amortization of investment securities available for sale

     1,525        1,785   

Net change in mortgage loans held for sale

     (6,925     (13,794

Net gains on securities available for sale

     (6     (171

Change attributable to other operating activities

     7,585        12,210   
  

 

 

   

 

 

 

Net cash provided by operating activities

     15,907        8,245   
  

 

 

   

 

 

 

Cash flows from investing activities, net of effect of business combinations:

    

Net increase in federal funds sold and interest-bearing deposits

     176,107        149,773   

Proceeds from maturities of s ecurities available for sale

     22,493        32,072   

Purchase of securities available for sale

     (68,632     (41,722

Proceeds from sales of securities available for sale

     69,768        31,340   

Purchase of bank owned life insurance

     —          (30,000

Net increase in loans, excluding purchased non-covered and covered loans

     (160,626     (116,430

Payments received on purchased non-covered loans

     27,791        —     

Payments received on covered loans

     64,743        65,971   

Payments received from FDIC under loss share agreements

     10,576        45,604   

Proceeds from sales of other real estate owned

     17,420        38,534   

Decrease in restricted equity securities, net

     6,832        —     

Proceeds from sales of premises and equipment

     56        1,928   

Purchases of premises and equipment

     (2,223     (2,117

Net cash proceeds received from acquisitions

     1,099        —     
  

 

 

   

 

 

 

Net cash provided by investing activities

     165,404        174,953   
  

 

 

   

 

 

 

Cash flows from financing activities, net of effect of business combinations:

    

Net increase/(decrease) in deposits

     20,780        (181,560

Net decrease in securities sold under agreements to repurchase

     (37,835     (30,978

Repayment of other borrowings

     (174,005     —     

Proceeds from other borrowings

     57,463        —     

Redemption of preferred stock

     (28,000     —     

Dividends paid - preferred stock

     (286     (700

Dividends paid - common stock

     (1,338     —     

Purchase of treasury shares

     (432     (116

Proceeds from exercise of stock options

     373        243   
  

 

 

   

 

 

 

Net cash used in financing activities

     (163,280     (213,111
  

 

 

   

 

 

 

Net increase (decrease) in cash and due from banks

     18,031        (29,913

Cash and due from banks at beginning of period

     62,955        80,256   
  

 

 

   

 

 

 

Cash and due from banks at end of period

   $ 80,986      $ 50,343   
  

 

 

   

 

 

 

 

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Table of Contents
    Six Months Ended
June 30,
 
    2014      2013  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Cash paid/(received) during the period for:

    

Interest

  $ 6,740       $ 5,371   

Income taxes

  $ 5,583       $ 8,356   

Loans (excluding purchased non-covered and covered loans) transferred to other real estate owned

  $ 6,400       $ 5,564   

Purchased non-covered loans transferred to other real estate owned

  $ 1,425       $ —     

Covered loans transferred to other real estate owned

  $ 9,083       $ 23,275   

Issuance of common stock in acquisitions

  $ 34,474       $ —     

See notes to unaudited consolidated financial statements.

 

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Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(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, 2014, the Bank operated 74 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 his or her 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, 2014 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, 2013.

Newly Issued Accounting Pronouncements

ASU 2014-09 – Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 provides guidance that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective prospectively, for annual and interim periods, beginning after December 15, 2016. The Company is currently evaluating the impact this standard will have on the Company’s results of operations, financial position or disclosures.

ASU 2014-04 – Receivables – Troubled Debt Restructurings by Creditors (“ASU 2014-04”). ASU 2014-04 clarifies when a creditor should reclassify mortgage loans collateralized by residential real estate from loans to other real estate owned. It defines when an
in-substance repossession or foreclosure has occurred and when a creditor is considered to have received physical possession of residential real estate collateralizing a mortgage loan. ASU 2014-04 is effective for fiscal years beginning after December 31, 2014, and early adoption is permitted. It can be applied either prospectively or using a modified retrospective transition method. The Company is evaluating the impact this standard may have on the Company’s results of operations, financial position or disclosures.

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. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of these revisions did not have a material impact on the Company’s results of operations, financial position or disclosures.

 

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NOTE 2 – BUSINESS COMBINATIONS

On June 30, 2014, the Company completed its acquisition of The Coastal Bankshares, Inc. (“Coastal”), a bank holding company headquartered in Savannah, Georgia. Upon consummation of the acquisition, Coastal was merged with and into the Company, with Ameris as the surviving entity in the merger. At that time, Coastal’s wholly owned banking subsidiary, The Coastal Bank, was also merged with and into the Bank. The acquisition grew the Company’s existing market presence, as Coastal Bank had a total of six banking locations in Chatham, Liberty and Effingham Counties, Georgia. Coastal’s common shareholders received 0.4671 of a share of the Company’s common stock in exchange for each share of Coastal’s common stock. As a result, the Company issued 1,598,987 common shares at a fair value of $34.5 million and paid $2.8 million cash in exchange for outstanding warrants.

The acquisition of Coastal was accounted for using the purchase method of accounting in accordance with FASB ASC 805, Business Combinations. Assets acquired, liabilities assumed and consideration exchanged were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available. Management continues to evaluate fair value adjustments related to loans, other real estate owned and deferred tax assets. Management is in the process of estimating the deferred tax assets resulting from differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for income tax purposes. This estimate will also reflect acquired net operating loss carryforwards and other acquired assets with built-in losses that are expected to be settled or otherwise recovered in future periods where the realization of such benefits would be subject to section 382 limitations. Accordingly, as of the date of acquisition, the Company has not established a deferred tax asset, as management is still performing its assessment of the realization of the benefits from the settlement or recovery of certain of these acquired assets and net operating losses are expected to be subject to section 382 limitations.

The following table presents the assets acquired and liabilities of Coastal assumed as of June 30, 2014 and their initial fair value estimates. The fair value adjustments shown in the following table continue to be evaluated by management and may be subject to further adjustment:

 

(Dollars in Thousands)    As Recorded by
Coastal
    Fair Value
Adjustments
    As Recorded
by Ameris
 

Assets

      

Cash and cash equivalents

   $ 3,895      $ —        $ 3,895   

Federal funds sold and interest-bearing balances

     15,923        —          15,923   

Investment securities

     67,266        (500 )(a)      66,766   

Other investments

     975        —          975   

Mortgage loans held for sale

     7,288        —          7,288   

Loans

     296,141        (16,700 )(b)      279,441   

Less allowance for loan losses

     (3,218     3,218 (c)      —     
  

 

 

   

 

 

   

 

 

 

Loans, net

     292,923        (13,482     279,441   

Other real estate owned

     14,992        (3,528 )(d)      11,464   

Premises and equipment

     11,882        —          11,882   

Intangible assets

     507        4,266 (e)      4,773   

Other assets

     22,710        —          22,710   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 438,361      $ (13,244   $ 425,117   
  

 

 

   

 

 

   

 

 

 

Liabilities

      

Deposits:

      

Noninterest-bearing

   $ 80,012      $ —        $ 80,012   

Interest-bearing

     289,012        —          289,012   
  

 

 

   

 

 

   

 

 

 

Total deposits

     369,024        —          369,024   

Federal funds purchased and securities sold under agreements to repurchase

     5,428        —          5,428   

Other borrowings

     22,005        —          22,005   

Other liabilities

     6,192        —          6,192   

Subordinated deferrable interest debentures

     15,465        (6,413 )(f)      9,052   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     418,114        (6,413     411,701   
  

 

 

   

 

 

   

 

 

 

Net identifiable assets acquired over (under) liabilities assumed

     20,247        (6,831     13,416   

Goodwill

     —          23,854        23,854   
  

 

 

   

 

 

   

 

 

 

Net assets acquired over (under) liabilities assumed

   $ 20,247      $ 17,023      $ 37,270   
  

 

 

   

 

 

   

 

 

 

Consideration:

      

Ameris Bancorp common shares issued

     1,598,987       

Purchase price per share of the Company’s common stock

   $ 21.56       
  

 

 

     

Company common stock issued

     34,474       

Cash exchanged for shares

     2,796       
  

 

 

     

Fair value of total consideration transferred

   $ 37,270       
  

 

 

     

 

Explanation of fair value adjustments

 

(a) Adjustment reflects the fair value adjustments of the available for sale portfolio as of the acquisition date.

 

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(b) Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.
(c) Adjustment reflects the elimination of Coastal’s allowance for loan losses.
(d) Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired OREO portfolio.
(e) Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts.
(f) Adjustment reflects the fair value adjustment to the subordinated deferrable interest debentures at the acquisition date.

On December 23, 2013, the Company completed its acquisition of The Prosperity Banking Company (“Prosperity”), a bank holding company headquartered in Saint Augustine, Florida. Upon consummation of the acquisition, Prosperity was merged with and into the Company, with Ameris as the surviving entity in the merger. At that time, Prosperity’s wholly owned banking subsidiary, Prosperity Bank, was also merged with and into the Bank. Prosperity Bank had a total of 12 banking locations, with the majority of the franchise concentrated in northeast Florida. Prosperity’s common shareholders were entitled to elect to receive either 3.125 shares of the Company’s common stock or $41.50 in cash in exchange for each share of Prosperity’s voting common stock. As a result of Prosperity shareholders’ elections, the Company issued 1,168,918 common shares at a fair value of $24.6 million.

The acquisition of Prosperity was accounted for using the purchase method of accounting in accordance with FASB ASC 805, Business Combinations. Assets acquired, liabilities assumed and consideration exchanged were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.

The following table presents the assets acquired and liabilities of Prosperity assumed as of December 23, 2013 and their initial fair value estimates:

 

(Dollars in Thousands)    As Recorded by
Prosperity
    Fair Value
Adjustments
    As Recorded
by Ameris
 

Assets

      

Cash and cash equivalents

   $ 4,285      $ —        $ 4,285   

Federal funds sold and interest-bearing balances

     21,687        —          21,687   

Investment securities

     151,863        411 (a)      152,274   

Other investments

     8,727        —          8,727   

Loans

     487,358        (37,662 )(b)      449,696   

Less allowance for loan losses

     (6,811     6,811 (c)      —     
  

 

 

   

 

 

   

 

 

 

Loans, net

     480,547        (30,851     449,696   

Other real estate owned

     6,883        (1,260 )(d)      5,623   

Premises and equipment

     36,293        —          36,293   

Intangible assets

     174        4,383 (e)      4,557   

Other assets

     26,600        1,192 (f)      27,792   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 737,059      $ (26,125   $ 710,934   
  

 

 

   

 

 

   

 

 

 

Liabilities

      

Deposits:

      

Noninterest-bearing

   $ 149,242      $ —        $ 149,242   

Interest-bearing

     324,441        —          324,441   
  

 

 

   

 

 

   

 

 

 

Total deposits

     473,683        —          473,683   

Federal funds purchased and securities sold under agreements to repurchase

     21,530        —          21,530   

Other borrowings

     185,000        12,313 (g)      197,313   

Other liabilities

     14,058        455 (h)      14,513   

Subordinated deferrable interest debentures

     29,500        (16,303 )(i)      13,197   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     723,771        (3,535     720,236   
  

 

 

   

 

 

   

 

 

 

Net identifiable assets acquired over (under) liabilities assumed

     13,288        (22,590     (9,302

Goodwill

     —          34,093        34,093   
  

 

 

   

 

 

   

 

 

 

Net assets acquired over (under) liabilities assumed

   $ 13,288      $ 11,503      $ 24,791   
  

 

 

   

 

 

   

 

 

 

Consideration:

      

Ameris Bancorp common shares issued

     1,168,918       

Purchase price per share of the Company’s common stock

   $ 21.07       
  

 

 

     

Company common stock issued

     24,629       

Cash exchanged for shares

     162       
  

 

 

     

Fair value of total consideration transferred

   $ 24,791       
  

 

 

     

 

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Explanation of fair value adjustments

 

(a) Adjustment reflects the fair value adjustments of the available for sale portfolio as of the acquisition date.
(b) Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.
(c) Adjustment reflects the elimination of Prosperity’s allowance for loan losses.
(d) Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired OREO portfolio.
(e) Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts.
(f) Adjustment reflects the adjustment to write-off the non-realizable portion of Prosperity’s deferred tax asset of ($6.644 million), to record the deferred tax asset generated by purchase accounting adjustments of $8.435 million and to record the fair value adjustment of other assets of ($0.599 million) at the acquisition date.
(g) Adjustment reflects the fair value adjustment (premium) to the FHLB borrowings of $12.741 million and the fair value adjustment to the subordinated debt of $0.428 million.
(h) Adjustment reflects the fair value adjustment of other liabilities at the acquisition date.
(i) Adjustment reflects the fair value adjustment to the subordinated deferrable interest debentures at the acquisition date.

On the dates of acquisition, the Company estimated the future cash flows on each individual loan and made the necessary adjustments to reflect the asset at fair value. At each quarter end subsequent to the acquisition dates, the Company revises the estimates of future cash flows based on current information and makes the necessary adjustments to carrying value. The adjustments are performed on a loan-by-loan basis. No adjustments have been made for the six months ended June 30, 2014, the year ended December 31, 2013 and the six months ended June 30, 2013.

A rollforward of purchased non-covered loans with deterioration of credit quality for the six months ended June 30, 2014, the year ended December 31, 2013 and the six months ended June 30, 2013 is shown below:

 

(Dollars in Thousands)

   June 30,
2014
    December 31,
2013
     June 30,
2013
 

Balance, January 1

   $ 67,165      $ —         $ —     

Charge-offs, net of recoveries

     (2,218     —           —     

Additions due to acquisitions

     29,280       67,165         —     

Other (loan payments, transfers, etc.)

     (970     —           —     
  

 

 

   

 

 

    

 

 

 

Ending balance

   $ 93,257      $ 67,165       $ —     
  

 

 

   

 

 

    

 

 

 

A rollforward of purchased non-covered loans without deterioration of credit quality for the six months ended June 30, 2014, the year ended December 31, 2013 and the six months ended June 30, 2013 is shown below:

 

(Dollars in Thousands)

   June 30,
2014
    December 31,
2013
    June 30,
2013
 

Balance, January 1

   $ 381,588      $ —        $ —     

Additions due to acquisitions

     249,520        382,531        —     

Loan payments, transfers, etc.

     (22,234     (943     —     
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 608,874      $ 381,588      $ —     
  

 

 

   

 

 

   

 

 

 

The following is a summary of changes in the accretable discounts of purchased non-covered loans during the six months ended June 30, 2014, the year ended December 31, 2013 and the six months ended June 30, 2013:

 

(Dollars in Thousands)

   June 30,
2014
    December 31,
2013
     June 30,
2013
 

Balance, January 1

   $ 26,189      $ —         $ —     

Additions due to acquisitions

     7,799        26,189         —     

Accretion

     (3,153     —           —     

Other activity, net

     1,486        —           —     
  

 

 

   

 

 

    

 

 

 

Ending balance

   $ 32,321      $ 26,189       $ —     
  

 

 

   

 

 

    

 

 

 

 

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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, 2014, December 31, 2013 and June 30, 2013 are presented below:

 

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

June 30, 2014:

          

U. S. government agencies

   $ 14,950       $ —         $ (505   $ 14,445   

State, county and municipal securities

     143,507         3,136         (863     145,780   

Corporate debt securities

     10,805         284         (131     10,958   

Mortgage-backed securities

     361,194         5,435         (2,182     364,447   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities

   $ 530,456       $ 8,855       $ (3,681   $ 535,630   
  

 

 

    

 

 

    

 

 

   

 

 

 

December 31, 2013:

          

U. S. government agencies

   $ 14,947       $ —         $ (1,021   $ 13,926   

State, county and municipal securities

     112,659         2,269         (2,174     112,754   

Corporate debt securities

     10,311         275         (261     10,325   

Collateralized debt obligations

     1,480         —           —          1,480   

Mortgage-backed securities

     349,441         2,347         (4,038     347,750   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities

   $ 488,838       $ 4,891       $ (7,494   $ 486,235   
  

 

 

    

 

 

    

 

 

   

 

 

 

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   
  

 

 

    

 

 

    

 

 

   

 

 

 

The amortized cost and fair value of available-for-sale securities at June 30, 2014 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

   $ 5,055       $ 5,123   

Due from one year to five years

     41,290         42,911   

Due from five to ten years

     66,456         66,794   

Due after ten years

     56,461         56,355   

Mortgage-backed securities

     361,194         364,447   
  

 

 

    

 

 

 
   $ 530,456       $ 535,630   
  

 

 

    

 

 

 

Securities with a carrying value of approximately $228.3 million serve as collateral to secure public deposits and for other purposes required or permitted by law at June 30, 2014, compared to $399.0 million and $224.5 million at December 31, 2013 and June 30, 2013, respectively.

 

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Table of Contents

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, 2014, December 31, 2013 and June 30, 2013.

 

     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, 2014:

               

U. S. government agencies

   $ —         $ —        $ 14,445       $ (505   $ 14,445       $ (505

State, county and municipal securities

     4,088         (35     29,203         (828     33,291         (863

Corporate debt securities

     —           —          4,945         (131     4,945         (131

Mortgage-backed securities

     25,107         (65     51,039         (2,117     76,146         (2,182
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 29,195       $ (100   $ 99,632       $ (3,581   $ 128,827       $ (3,681
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

December 31, 2013:

               

U. S. government agencies

   $ 13,926       $ (1,021   $ —         $ —        $ 13,926       $ (1,021

State, county and municipal securities

     47,401         (1,882     3,794         (292     51,195         (2,174

Corporate debt securities

     —           —          4,826         (261     4,826         (261

Collateralized debt obligations

     —           —          —           —          —           —     

Mortgage-backed securities

     94,989         (2,493     23,388         (1,545     118,377         (4,038
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 156,316       $ (5,396   $ 32,008       $ (2,098   $ 188,324       $ (7,494
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. While the majority of the unrealized losses on debt securities relate to changes in interest rates, corporate debt securities have also been affected by reduced levels of liquidity and higher risk premiums. Occasionally, management engages independent third parties to evaluate the Company’s position in certain corporate debt securities to aid management and the ALCO Committee in its determination regarding the status of impairment. The Company believes that each investment poses minimal credit risk and further, that the Company does not intend to sell these investment securities at an unrealized loss position at June 30, 2014, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at June 30, 2014, these investments are not considered impaired on an other-than-temporary basis.

At December 31, 2013 and 2012, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.

The following table is a summary of sales activities in the Company’s investment securities available for sale for the six months ended June 30, 2014, year ended December 31, 2013 and six months ended June 30, 2013:

 

     June 30, 2014     December 31, 2013     June 30, 2013  
     (Dollars in Thousands)  

Gross gains on sales of securities

   $ 8      $ 353      $ 353   

Gross losses on sales of securities

     (2     (182     (182
  

 

 

   

 

 

   

 

 

 

Net realized gains on sales of securities available for sale

   $ 6      $ 171      $ 171   
  

 

 

   

 

 

   

 

 

 

Sales proceeds

   $ 69,768      $ 36,669      $ 31,340   
  

 

 

   

 

 

   

 

 

 

 

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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, excluding purchased non-covered and covered loans:

 

(Dollars in Thousands)

   June 30,
2014
     December 31,
2013
     June 30,
2013
 

Commercial, financial and agricultural

   $ 304,588       $ 244,373       $ 208,424   

Real estate – construction and development

     149,346         146,371         134,607   

Real estate – commercial and farmland

     850,000         808,323         788,654   

Real estate – residential

     422,731         366,882         357,685   

Consumer installment

     31,902         34,249         36,923   

Other

     11,492         18,256         29,534   
  

 

 

    

 

 

    

 

 

 
   $ 1,770,059       $ 1,618,454       $ 1,555,827   
  

 

 

    

 

 

    

 

 

 

Purchased non-covered loans are defined as loans that were acquired in bank acquisitions that are not covered by a loss-sharing agreement with the FDIC. Purchased non-covered loans totaling $702.1 million and $448.8 million at June 30, 2014 and December 31, 2013, respectively, are not included in the above schedule. There were no purchased non-covered loans at June 30, 2013.

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

 

(Dollars in Thousands)

   June 30,
2014
     December 31,
2013
     June 30,
2013
 

Commercial, financial and agricultural

   $ 41,583       $ 32,141       $ —     

Real estate – construction and development

     64,084         31,176         —     

Real estate – commercial and farmland

     311,748         179,898         —     

Real estate – residential

     278,451         200,851         —     

Consumer installment

     6,265         4,687         —     
  

 

 

    

 

 

    

 

 

 
   $ 702,131       $ 448,753       $ —     
  

 

 

    

 

 

    

 

 

 

 

12


Table of Contents

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 $331.3 million, $390.2 million and $443.5 million at June 30, 2014, December 31, 2013 and June 30, 2013, 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,
2014
     December 31,
2013
     June 30,
2013
 

Commercial, financial and agricultural

   $ 25,209       $ 26,550       $ 27,371   

Real estate – construction and development

     31,600         43,179         52,972   

Real estate – commercial and farmland

     188,643         224,451         255,102   

Real estate – residential

     85,518         95,173         107,107   

Consumer installment

     280         884         965   
  

 

 

    

 

 

    

 

 

 
   $ 331,250       $ 390,237       $ 443,517   
  

 

 

    

 

 

    

 

 

 

Nonaccrual and Past Due Loans

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged against interest income. Interest payments on nonaccrual 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. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Nonaccrual 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 loans accounted for on a nonaccrual basis, excluding purchased non-covered and covered loans:

 

(Dollars in Thousands)

   June 30,
2014
     December 31,
2013
     June 30,
2013
 

Commercial, financial and agricultural

   $ 1,596       $ 4,103       $ 4,326   

Real estate – construction and development

     3,452         3,971         5,448   

Real estate – commercial and farmland

     8,831         8,566         8,963   

Real estate – residential

     7,795         12,152         12,423   

Consumer installment

     437         411         651   
  

 

 

    

 

 

    

 

 

 
   $ 22,111       $ 29,203       $ 31,811   
  

 

 

    

 

 

    

 

 

 

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

 

(Dollars in Thousands)

   June 30,
2014
     December 31,
2013
     June 30,
2013
 

Commercial, financial and agricultural

   $ 143       $ 11       $ —     

Real estate – construction and development

     2,273         325         —     

Real estate – commercial and farmland

     6,647         1,653         —     

Real estate – residential

     6,658         4,658         —     

Consumer installment

     49         12         —     
  

 

 

    

 

 

    

 

 

 
   $ 15,770       $ 6,659       $ —     
  

 

 

    

 

 

    

 

 

 

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

 

(Dollars in Thousands)

   June 30,
2014
     December 31,
2013
     June 30,
2013
 

Commercial, financial and agricultural

   $ 12,254       $ 7,257       $ 8,729   

Real estate – construction and development

     8,028         14,781         17,039   

Real estate – commercial and farmland

     17,027         33,495         47,427   

Real estate – residential

     8,702         13,278         15,459   

Consumer installment

     127         341         285   
  

 

 

    

 

 

    

 

 

 
   $ 46,138       $ 69,152       $ 88,939   
  

 

 

    

 

 

    

 

 

 

 

13


Table of Contents

The following table presents an aging analysis of loans, excluding purchased non-covered and covered past due loans as of June 30, 2014, December 31, 2013 and June 30, 2013:

 

     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, 2014:

                    

Commercial, financial & agricultural

   $ 1,180       $ 966       $ 1,077       $ 3,223       $ 301,365       $ 304,588       $ —     

Real estate – construction & development

     3,942         296         3,449         7,687         141,659         149,346         —     

Real estate – commercial & farmland

     4,622         1,860         7,404         13,886         836,114         850,000         —     

Real estate – residential

     5,806         3,829         7,197         16,832         405,899         422,731         —     

Consumer installment loans

     345         176         310         831         31,071         31,902         —     

Other

     —           —           —           —           11,492         11,492         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 15,895       $ 7,127       $ 19,437       $ 42,459       $ 1,727,600       $ 1,770,059       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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 31, 2013:

                    

Commercial, financial & agricultural

   $ 10,893       $ 272       $ 4,081       $ 15,246       $ 229,127       $ 244,373       $ —     

Real estate – construction & development

     1,026         69         3,935         5,030         141,341         146,371         —     

Real estate – commercial & farmland

     3,981         1,388         7,751         13,120         795,203         808,323         —     

Real estate – residential

     5,422         1,735         11,587         18,744         348,138         366,882         —     

Consumer installment loans

     568         197         305         1,070         33,179         34,249         —     

Other

     —           —           —           —           18,256         18,256         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 21,890       $ 3,661       $ 27,659       $ 53,210       $ 1,565,244       $ 1,618,454       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

14


Table of Contents

The following table presents an aging analysis of purchased non-covered past due loans based on the recorded basis as of June 30, 2014 and December 31, 2013. There were no purchased non-covered loans as of June 30, 2013:

 

     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, 2014:

                    

Commercial, financial & agricultural

   $ 137       $ 26       $ 143       $ 306       $ 41,277       $ 41,583       $ —     

Real estate – construction & development

     712         168         2,165         3,045         61,039         64,084         —     

Real estate – commercial & farmland

     1,263         1,605         6,647         9,515         302,233         311,748         —     

Real estate – residential

     6,952         983         6,144         14,079         264,372         278,451         —     

Consumer installment loans

     23         29         47         99         6,166         6,265         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,087       $ 2,811       $ 15,146       $ 27,044       $ 675,087       $ 702,131       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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 31, 2013:

                    

Commercial, financial & agricultural

   $ 370       $ 70       $ 11       $ 451       $ 31,690       $ 32,141       $ —     

Real estate – construction & development

     1,008         89         325         1,422         29,754         31,176         —     

Real estate – commercial & farmland

     6,851         2,064         1,516         10,431         169,467         179,898         —     

Real estate – residential

     4,667         1,074         3,428         9,169         191,682         200,851         —     

Consumer installment loans

     7         17         9         33         4,654         4,687         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,903       $ 3,314       $ 5,289       $ 21,506       $ 427,247       $ 448,753       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

15


Table of Contents

The following table presents an aging analysis of covered loans as of June 30, 2014, December 31, 2013 and June 30, 2013:

 

     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, 2014:

                    

Commercial, financial & agricultural

   $ 16       $ 467       $ 6,909       $ 7,392       $ 17,817       $ 25,209       $ —     

Real estate – construction & development

     551         459         7,708         8,718         22,882         31,600         —     

Real estate – commercial & farmland

     6,399         139         10,443         16,981         171,662         188,643         —     

Real estate – residential

     2,490         690         5,939         9,119         76,399         85,518         —     

Consumer installment loans

     —           49         56         105         175         280         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,456       $ 1,804       $ 31,055       $ 42,315       $ 288,935       $ 331,250       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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 31, 2013:

                    

Commercial, financial & agricultural

   $ 3,966       $ 12       $ 6,165       $ 10,143       $ 16,407       $ 26,550       $ —    

Real estate – construction & development

     843         144         14,055         15,042         28,137         43,179         —    

Real estate – commercial & farmland

     8,482         4,350         26,428         39,260         185,191         224,451         346  

Real estate – residential

     7,648         1,914         10,244         19,806         75,367         95,173         —    

Consumer installment loans

     51         14         305         370         514         884         —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 20,990       $ 6,434       $ 57,197       $ 84,621       $ 305,616       $ 390,237       $ 346  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

16


Table of Contents

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 impaired loans, excluding purchased non-covered and covered loans:

 

     As of and For the Period Ended  
     June 30,
2014
     December 31,
2013
     June 30,
2013
 
     (Dollars in Thousands)  

Nonaccrual loans

   $ 22,111       $ 29,203       $ 31,811   

Troubled debt restructurings not included above

     17,337         17,214         18,015   
  

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 39,448       $ 46,417       $ 49,826   
  

 

 

    

 

 

    

 

 

 

Impaired loans not requiring a related allowance

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Impaired loans requiring a related allowance

   $ 39,448       $ 46,417       $ 49,826   
  

 

 

    

 

 

    

 

 

 

Allowance related to impaired loans

   $ 3,619       $ 3,871       $ 5,072   
  

 

 

    

 

 

    

 

 

 

Average investment in impaired loans

   $ 43,814       $ 51,721       $ 54,481   
  

 

 

    

 

 

    

 

 

 

Interest income recognized on impaired loans

   $ 42       $ 522       $ 451   
  

 

 

    

 

 

    

 

 

 

Foregone interest income on impaired loans

   $ 23       $ 418       $ 172   
  

 

 

    

 

 

    

 

 

 

The following table presents an analysis of information pertaining to impaired loans, excluding purchased non-covered and covered loans as of June 30, 2014, December 31, 2013 and June 30, 2013.

 

     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, 2014:

                 

Commercial, financial & agricultural

   $ 3,398       $ —         $ 1,852       $ 1,852       $ 298       $ 3,397   

Real estate – construction & development

     9,336         —           5,532         5,532         798         5,811   

Real estate – commercial & farmland

     19,215         —           16,421         16,421         1,629         16,394   

Real estate – residential

     18,313         —           15,131         15,131         884         17,698   

Consumer installment loans

     638         —           512         512         10         514   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 50,900       $ —         $ 39,448       $ 39,448       $ 3,619       $ 43,814   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents
     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, 2013:

                 

Commercial, financial & agricultural

   $ 6,240       $ —         $ 4,618       $ 4,618       $ 435       $ 4,844   

Real estate – construction & development

     11,363         —           5,867         5,867         512         8,341   

Real estate – commercial & farmland

     18,456         —           15,479         15,479         1,443         17,559   

Real estate – residential

     24,342         —           19,970         19,970         1,472         20,335   

Consumer installment loans

     623         —           483         483         9         642   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 61,024       $ —         $ 46,417       $ 46,417       $ 3,871       $ 51,721   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     As of and For the Period Ended  
     June 30,
2014
     December 31,
2013
     June 30,
2013
 
     (Dollars in Thousands)  

Nonaccrual loans

   $ 15,770       $ 6,659       $ —     

Troubled debt restructurings not included above

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 15,770       $ 6,659       $ —     
  

 

 

    

 

 

    

 

 

 

Impaired loans not requiring a related allowance

   $ 15,770       $ 6,659       $ —     
  

 

 

    

 

 

    

 

 

 

Impaired loans requiring a related allowance

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Allowance related to impaired loans

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Average investment in impaired loans

   $ 12,582       $ 128       $ —     
  

 

 

    

 

 

    

 

 

 

Interest income recognized on impaired loans

   $ 16       $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Foregone interest income on impaired loans

   $ 158       $ —         $ —     
  

 

 

    

 

 

    

 

 

 

 

18


Table of Contents

The following table presents an analysis of information pertaining to impaired purchased non-covered loans as of June 30, 2014 and December 31, 2013. There were no purchased non-covered loans as of June 30, 2013:

 

     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, 2014:

                 

Commercial, financial & agricultural

   $ 550       $ 143       $ —         $ 143       $ —         $ 90   

Real estate – construction & development

     4,649         2,273         —           2,273         —           1,243   

Real estate – commercial & farmland

     9,848         6,647         —           6,647         —           5,043   

Real estate – residential

     10,598         6,658         —           6,658         —           6,175   

Consumer installment loans

     65         49         —           49         —           31   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 25,710       $ 15,770       $ —         $ 15,770       $ —         $ 12,582   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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, 2013:

                 

Commercial, financial & agricultural

   $ 19       $ 11       $ —         $ 11       $ —         $ —     

Real estate – construction & development

     542         325         —           325         —           6   

Real estate – commercial & farmland

     2,673         1,653         —           1,653         —           32   

Real estate – residential

     7,712         4,658         —           4,658         —           90   

Consumer installment loans

     20         12         —           12         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 10,996       $ 6,659       $ —         $ 6,659       $ —         $ 128   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     As of and For the Period Ended  
     June 30,
2014
     December 31,
2013
     June 30,
2013
 
     (Dollars in Thousands)  

Nonaccrual loans

   $ 46,138       $ 69,152       $ 88,939   

Troubled debt restructurings not included above

     9,221         8,409         10,253   
  

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 55,359       $ 77,561       $ 99,192   
  

 

 

    

 

 

    

 

 

 

Impaired loans not requiring a related allowance

   $ 55,359       $ 77,561       $ 99,192   
  

 

 

    

 

 

    

 

 

 

Impaired loans requiring a related allowance

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Allowance related to impaired loans

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Average investment in impaired loans

   $ 70,932       $ 94,873       $ 104,473   
  

 

 

    

 

 

    

 

 

 

Interest income recognized on impaired loans

   $ 214       $ 968       $ 784   
  

 

 

    

 

 

    

 

 

 

Foregone interest income on impaired loans

   $ 94       $ 330       $ 242   
  

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

The following table presents an analysis of information pertaining to impaired covered loans as of June 30, 2014, December 31, 2013 and June 30, 2013:

 

     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, 2014:

                 

Commercial, financial & agricultural

   $ 14,617       $ 12,254       $ —         $ 12,254       $ —         $ 10,525   

Real estate – construction & development

     9,780         8,028         —           8,028         —           13,380   

Real estate – commercial & farmland

     21,236         18,093         —           18,093         —           27,174   

Real estate – residential

     18,662         16,857         —           16,857         —           19,641   

Consumer installment loans

     161         127         —           127         —           212   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 64,456       $ 55,359       $ —         $ 55,359       $ —         $ 70,932   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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, 2013:

                 

Commercial, financial & agricultural

   $ 9,598       $ 7,257       $ —         $ 7,257       $ —         $ 8,676   

Real estate – construction & development

     17,540         14,781         —           14,781         —           17,909   

Real estate – commercial & farmland

     39,056         34,074         —           34,074         —           44,652   

Real estate – residential

     24,819         21,108         —           21,108         —           23,332   

Consumer installment loans

     394         341         —           341         —           304   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 91,407       $ 77,561       $ —         $ 77,561       $ —         $ 94,873   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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

   $ 12,151       $ 8,769       $ —         $ 8,769       $ —         $ 9,417   

Real estate – construction & development

     24,044         19,198         —           19,198         —           19,394   

Real estate – commercial & farmland

     58,538         48,000         —           48,000         —           50,508   

Real estate – residential

     27,794         22,940         —           22,940         —           24,877   

Consumer installment loans

     340         285         —           285         —           277   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 122,867       $ 99,192       $ —         $ 99,192       $ —         $ 104,473   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit Quality Indicators

The Company uses a nine category risk grading system to assign a risk grade to each loan in the portfolio. Every loan is assigned a risk rating, with the exception of credit card receivables and overdraft protection loans which are treated as pools for risk rating purposes. Relationships greater than $250,000 are reviewed annually by the Bank’s independent internal loan review department or an independent third party loan review firm. The 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, the 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 exhibit a loan-to-value ratio greater than 110%, based on a documented collateral valuation.

 

20


Table of Contents

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 and interim losses); (ii) adverse, extraordinary events that have affected, or could affect, the borrower’s cash flow, financial condition, ability to continue operating profitability or refinancing (such as death of principal, fire and divorce); (iii) loans that require more than the normal servicing requirements (such as any type of construction financing, acquisition and development loans, accounts receivable or inventory loans and floor plan loans); (iv) existing technical exceptions which raise some doubts about the Bank’s perfection in its collateral position or the continued financial capacity of the borrower; or (v) improvements in formerly criticized borrowers, which may warrant banker supervision.

Grade 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 loan portfolio, excluding purchased non-covered and covered loans, by risk grade as of June 30, 2014.

 

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

   $ 103,726       $ —         $ 255       $ 505       $ 6,356       $ —         $ 110,842   

15

     24,620         4,678         141,846         54,388         1,120         —           226,652   

20

     102,278         48,008         460,715         226,149         17,714         11,492         866,356   

23

     123         9,215         9,318         9,479         294         —           28,429   

25

     65,882         77,973         197,381         103,846         5,281         —           450,363   

30

     4,004         2,680         12,914         13,568         194         —           33,360   

40

     3,955         6,792         27,571         14,786         943         —           54,047   

50

     —           —           —           10         —           —           10   

60

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 304,588       $ 149,346       $ 850,000       $ 422,731       $ 31,902       $ 11,492       $ 1,770,059   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the loan portfolio, excluding purchased non-covered and covered loans, by risk grade as of December 31, 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

   $ 66,983       $ —         $ 265       $ 419       $ 6,714       $ —         $ 74,381   

15

     24,789         4,655         147,157         52,335         1,276         —           230,212   

20

     93,852         45,195         431,790         165,339         18,619         18,256         773,051   

23

     127         8,343         10,219         12,641         274         —           31,604   

25

     50,373         78,736         181,645         103,427         6,310         —           420,491   

30

     2,111         2,876         11,849         13,558         197         —           30,591   

40

     6,011         6,566         25,398         19,153         859         —           57,987   

50

     127         —           —           10         —           —           137   

60

     —          —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 244,373       $ 146,371       $ 808,323       $ 366,882       $ 34,249       $ 18,256       $ 1,618,454   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

21


Table of Contents

The following table presents the loan portfolio, excluding purchased non-covered and covered loans, 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 purchased non-covered loan portfolio by risk grade as of June 30, 2014:

 

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

   $ 3,494       $ —         $ —         $ 293       $ 557       $ —         $ 4,344   

15

     4,728         245         14,191         15,839         537         —           35,540   

20

     11,567         12,905         94,598         64,937         2,683         —           186,690   

23

     —           —           —           165         —           —           165   

25

     18,251         42,127         175,427         178,523         2,343         —           416,671   

30

     3,162         4,722         16,078         8,326         21         —           32,309   

40

     381         4,085         11,454         10,368         124         —           26,412   

50

     —           —           —           —           —           —           —     

60

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 41,583       $ 64,084       $ 311,748       $ 278,451       $ 6,265       $   —         $ 702,131   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 1,865       $ —         $ —         $ 289       $ 451       $ —         $ 2,605   

15

     4,606         7         12,998         16,160         703         —           34,474   

20

     5,172         3,960         43,802         34,576         1,383         —           88,893   

23

     —           —           —           —           —           —           —     

25

     19,638         20,733         102,260         129,923         1,888         —           274,442   

30

     576         1,760         9,554         10,878         194         —           22,962   

40

     284         4,716         11,284         9,025         68         —           25,377   

50

     —           —           —           —           —           —           —     

60

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 32,141       $ 31,176       $ 179,898       $ 200,851       $ 4,687       $   —         $ 448,753   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

There were no purchased non-covered loans as of June 30, 2013.

 

22


Table of Contents

The following table presents the covered loan portfolio by risk grade as of June 30, 2014:

 

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

     —           2         822         629         —           —           1,453   

20

     1,133         5,524         33,050         17,143         68         —           56,918   

23

     124         555         15,528         5,557         —           —           21,764   

25

     6,569         9,251         94,504         36,507         40         —           146,871   

30

     4,398         4,802         9,959         8,326         2         —           27,487   

40

     12,985         11,466         34,780         17,356         170         —           76,757   

50

     —           —           —           —           —           —           —     

60

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 25,209       $ 31,600       $ 188,643       $ 85,518       $ 280       $   —         $ 331,250   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

     —           16         1,048         638         —           —           1,702   

20

     2,184         8,549         34,674         21,363         193         —           66,963   

23

     134         1,085         17,037         4,748         51         —           23,055   

25

     7,508         9,611         101,657         38,427         235         —           157,438   

30

     5,125         2,006         21,297         6,979         17         —           35,424   

40

     11,599         21,912         48,738         23,018         388         —           105,655   

50

     —           —           —           —           —           —           —     

60

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 26,550       $ 43,179       $ 224,451       $ 95,173       $ 884       $ —         $ 390,237   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

23


Table of Contents

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 a 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 on 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 six months of 2014 and 2013 totaling $8.4 million and $20.7 million, respectively, 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.

As of June 30, 2014, December 31, 2013 and June 30, 2013, the Company had a balance of $21.1 million, $20.9 million and $20.6 million, respectively, in troubled debt restructurings, excluding purchased non-covered and covered loans. The Company has recorded $3.0 million, $2.1 million and $2.0 million in previous charge-offs on such loans at June 30, 2014, December 31, 2013 and June 30, 2013, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $398,000, $432,000 and $482,000 at June 30, 2014, December 31, 2013 and June 30, 2013, respectively. At June 30, 2014, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings. Troubled debt restructurings with an outstanding balance of $130,218 at December 31, 2013 defaulted during the first six months of 2014 and these defaults did not have a material impact on the Company’s allowance for loan loss.

 

24


Table of Contents

The following table presents the amount of troubled debt restructurings by loan class, excluding purchased non-covered and covered loans, classified separately as accrual and non-accrual at June 30, 2014, December 31, 2013 and June 30, 2013:

 

As of June 30, 2014    Accruing Loans      Non-Accruing Loans  

Loan class:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Commercial, financial & agricultural

     3       $ 257         3       $ 465   

Real estate – construction & development

     12         2,080         2         32   

Real estate – commercial & farmland

     19         7,590         4         2,151   

Real estate – residential

     38         7,335         8         1,044   

Consumer installment

     14         75         5         51   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     86       $ 17,337         22       $ 3,743   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of December 31, 2013    Accruing Loans      Non-Accruing Loans  

Loan class:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Commercial, financial & agricultural

     4       $ 515         3       $ 525   

Real estate – construction & development

     8         1,896         2         32   

Real estate – commercial & farmland

     17         6,913         4         2,273   

Real estate – residential

     37         7,818         8         834   

Consumer installment

     6         72         3         19   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     72       $ 17,214         20       $ 3,683   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of June 30, 2013    Accruing Loans      Non-Accruing Loans  

Loan class:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Commercial, financial & agricultural

     7       $ 1,059         —         $ —     

Real estate – construction & development

     7         1,946         1         29   

Real estate – commercial & farmland

     16         7,529         2         1,493   

Real estate – residential

     30         7,468         6         1,046   

Consumer installment

     1         13         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     61       $ 18,015         9       $ 2,568   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

25


Table of Contents

The following table presents the amount of troubled debt restructurings by loan class, excluding purchased non-covered and covered loans, classified separately as those currently paying under restructured terms and those that have defaulted (defined as 30 days past due) under restructured terms at June 30, 2014, December 31, 2013 and June 30, 2013:

 

As of June 30, 2014    Loans Currently
Paying Under
Restructured Terms
     Loans that have
Defaulted Under
Restructured Terms
 

Loan class:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Commercial, financial & agricultural

     5       $ 272         1       $ 449   

Real estate – construction & development

     10         2,042         4         69   

Real estate – commercial & farmland

     20         7,895         3         1,846   

Real estate – residential

     34         6,582         12         1,798   

Consumer installment

     14         92         5         35   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     83       $ 16,883         25       $ 4,197   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of December 31, 2013    Loans Currently
Paying Under
Restructured Terms
     Loans that have
Defaulted Under
Restructured Terms
 

Loan class:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Commercial, financial & agricultural

     4       $ 515         3       $ 525   

Real estate – construction & development

     8         1,896         2         32   

Real estate – commercial & farmland

     16         6,396         5         2,789   

Real estate – residential

     32         6,699         13         1,953   

Consumer installment

     7         90         2         2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     67       $ 15,596         25       $ 5,301   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of June 30, 2013    Loans Currently
Paying Under
Restructured Terms
     Loans that have
Defaulted Under
Restructured Terms
 

Loan class:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Commercial, financial & agricultural

     7       $ 1,059         —         $ —     

Real estate – construction & development

     7         1,946         1         29   

Real estate – commercial & farmland

     16         7,529         2         1,493   

Real estate – residential

     31         7,788         5         726   

Consumer installment

     1         13         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     62       $ 18,335         8       $ 2,248   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

26


Table of Contents

The following table presents the amount of troubled debt restructurings, excluding purchased non-covered and covered loans, by types of concessions made, classified separately as accrual and non-accrual at June 30, 2014, December 31, 2013 and June 30, 2013:

 

As of June 30, 2014    Accruing Loans      Non-Accruing Loans  

Type of concession:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Forbearance of interest

     12       $ 2,145         —         $ —     

Forgiveness of principal

     5         2,448         —           —     

Rate reduction only

     14         6,842         5         1,176   

Rate reduction, forbearance of interest

     38         3,204         14         2,522   

Rate reduction, forbearance of principal

     17         2,698         2         16   

Rate reduction, payment modification

     —           —           1         29   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     86       $ 17,337         22       $ 3,743   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of December 31, 2013    Accruing Loans      Non-Accruing Loans  

Type of concession:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Forbearance of interest

     10       $ 2,170         2       $ 97   

Forgiveness of principal

     3         1,467         1         145   

Payment modification only

     1         280         1         88   

Rate reduction only

     14         7,069         3         913   

Rate reduction, forbearance of interest

     26         3,252         12         2,411   

Rate reduction, forbearance of principal

     18         2,976         —           —     

Rate reduction, payment modification

     —           —           1         29   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     72       $ 17,214         20       $ 3,683   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of June 30, 2013    Accruing Loans      Non-Accruing Loans  

Type of concession:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Forbearance of interest

     9       $ 2,168         2       $ 105   

Forgiveness of principal

     3         1,493         1         145   

Payment modification only

     2         373         —           —     

Rate reduction only

     12         6,924         2         496   

Rate reduction, forbearance of interest

     18         4,724         1         222   

Rate reduction, forbearance of principal

     17         2,333         2         1,571   

Rate reduction, payment modification

     —           —           1         29   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     61       $ 18,015         9       $ 2,568   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

27


Table of Contents

The following table presents the amount of troubled debt restructurings, excluding purchased non-covered and covered loans, by collateral types, classified separately as accrual and non-accrual at June 30, 2014, December 31, 2013 and June 30, 2013:

 

As of June 30, 2014    Accruing Loans      Non-Accruing Loans  

Collateral type:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Warehouse

     4       $ 1,385         2       $ 469   

Raw land

     5         1,279         1         29   

Agricultural land

     2         374         —           —     

Hotel & motel

     3         2,101         —           —     

Office

     4         1,644         —           —     

Retail, including strip centers

     5         1,722         2         1,682   

1-4 family residential

     46         8,144         10         1,063   

Church

     1         364         —           —     

Automobile/equipment/inventory

     15         84         7         500   

Unsecured

     1         240         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     86       $ 17,337         22       $ 3,743   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of December 31, 2013    Accruing Loans      Non-Accruing Loans  

Collateral type:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Warehouse

     4       $ 1,346         2       $ 592   

Raw land

     11         2,345         2         32   

Hotel & motel

     3         2,185         —           —     

Office

     4         1,909         —           —     

Retail, including strip centers

     4         1,095         2         1,680   

1-4 family residential

     36         7,747         9         852   

Life insurance policy

     1         250         —           —     

Automobile/equipment/inventory

     8         92         4         479   

Unsecured

     1         245         1         48   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     72       $ 17,214         20       $ 3,683   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of June 30, 2013    Accruing Loans      Non-Accruing Loans  

Collateral type:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Warehouse

     2       $ 345         2       $ 1,493   

Raw land

     3         1,354         1         29   

Agricultural land

     1         66         —           —     

Hotel & motel

     3         2,233         —           —     

Office

     4         2,085         —           —     

Retail, including strip centers

     6         2,800         —           —     

1-4 family residential

     34         8,061         6         1,046   

Life insurance policy

     1         249         —           —     

Automobile/equipment/inventory

     5         522         —           —     

Unsecured

     2         300         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     61       $ 18,015         9       $ 2,568   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2014 and December 31, 2013, the Company did not have any troubled debt restructurings included in purchased non-covered loans.

 

28


Table of Contents

As of June 30, 2014, December 31, 2013 and June 30, 2013, the Company had a balance of $9.8 million, $9.1 million and $10.4 million, respectively, in troubled debt restructurings included in covered loans. The Company has recorded $42,000, $64,000 and $36,000 in previous charge-offs on such loans at June 30, 2014, December 31, 2013 and June 30, 2013, respectively. At June 30, 2014, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

The following table presents the amount of troubled debt restructurings by loan class of covered loans, classified separately as accrual and non-accrual at June 30, 2014, December 31, 2013 and June 30, 2013:

 

As of June 30, 2014    Accruing Loans      Non-Accruing Loans  

Loan class:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Commercial, financial & agricultural

     —         $ —           1       $ 24   

Real estate – construction & development

     —           —           1         14   

Real estate – commercial & farmland

     5         1,066         2         152   

Real estate – residential

     82         8,155         7         403   

Consumer installment

     —           —           1         4   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     87       $ 9,221         12       $ 597   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of December 31, 2013    Accruing Loans      Non-Accruing Loans  

Loan class:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Commercial, financial & agricultural

     —         $ —           2       $ 67   

Real estate – construction & development

     —           —           1         16   

Real estate – commercial & farmland

     4         579         1         134   

Real estate – residential

     72         7,830         6         464   

Consumer installment

     —           —           1         5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     76       $ 8,409         11       $ 686   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of June 30, 2013    Accruing Loans      Non-Accruing Loans  

Loan class:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Commercial, financial & agricultural

     1       $ 40         —         $ —     

Real estate – construction & development

     2         2,159         1         10   

Real estate – commercial & farmland

     4         573         1         19   

Real estate – residential

     63         7,481         2         122   

Consumer installment

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     70       $ 10,253         4       $ 151   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

29


Table of Contents

The following table presents the amount of troubled debt restructurings by loan class of covered loans, classified separately as those currently paying under restructured terms and those that have defaulted under restructured terms at June 30, 2014, December 31, 2013 and June 30, 2013:

 

As of June 30, 2014    Loans Currently Paying
Under Restructured Terms
     Loans that have Defaulted
Under Restructured Terms
 

Loan class:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Commercial, financial & agricultural

     1       $ 24         —         $ —     

Real estate – construction & development

     —           —           1         14   

Real estate – commercial & farmland

     7         1,217         —           —     

Real estate – residential

     76         7,297         13         1,262   

Consumer installment

     1         4         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     85       $ 8,542         14       $ 1,276   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of December 31, 2013    Loans Currently Paying
Under Restructured Terms
     Loans that have Defaulted
Under Restructured Terms
 

Loan class:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Commercial, financial & agricultural

     1       $ 27         1       $ 40   

Real estate – construction & development

     1         16         —           —     

Real estate – commercial & farmland

     5         713         —           —     

Real estate – residential

     58         5,830         20         2,463   

Consumer installment

     1         6         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     66       $ 6,592         21       $ 2,503   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of June 30, 2013    Loans Currently Paying
Under Restructured Terms
     Loans that have Defaulted
Under Restructured Terms
 

Loan class:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Commercial, financial & agricultural

     1       $ 40         —         $ —     

Real estate – construction & development

     2         2,159         1         11   

Real estate – commercial & farmland

     5         592         —           —     

Real estate – residential

     57         5,808         8         1,794   

Consumer installment

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     65       $ 8,599         9       $ 1,805   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

30


Table of Contents

The following table presents the amount of troubled debt restructurings included in covered loans, by types of concessions made, classified separately as accrual and non-accrual at June 30, 2014, December 31, 2013 and June 30, 2013:

 

As of June 30, 2014    Accruing Loans      Non-Accruing Loans  

Type of Concession:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Forbearance of Interest

     —         $ —           1       $ 24   

Forbearance of Principal

     —           —           1         26   

Rate Reduction Only

     78         7,835         6         374   

Rate Reduction, Forbearance of Interest

     3         88         3         45   

Rate Reduction, Forbearance of Principal

     6         1,298         1         128   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     87       $ 9,221         12       $ 597   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of December 31, 2013    Accruing Loans      Non-Accruing Loans  

Type of Concession:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Rate Reduction Only

     68       $ 7,510         6       $ 457   

Rate Reduction, Forbearance of Interest

     3         88         4         96   

Rate Reduction, Forbearance of Principal

     5      

 

811

  

     1         133   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     76       $ 8,409         11       $ 686   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of June 30, 2013    Accruing Loans      Non-Accruing Loans  

Type of Concession:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Forbearance of Interest

     4       $ 260         1       $ 11   

Rate Reduction Only

     57         9,051         3         140   

Rate Reduction, Forbearance of Interest

     4         129         —           —     

Rate Reduction, Forbearance of Principal

     5         813         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     70       $ 10,253         4       $ 151   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table presents the amount of troubled debt restructurings included in covered loans, by collateral types, classified separately as accrual and non-accrual at June 30, 2014, December 31, 2013 and June 30, 2013:

 

As of June 30, 2014    Accruing Loans      Non-Accruing Loans  

Collateral type:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Raw Land

     —         $ —           2       $ 38   

Hotel & Motel

     1         175         —           —     

Office

     1         488         —           —     

Retail, including Strip Centers

     2         280         1         128   

1-4 Family Residential

     83         8,278         8         407   

Automobile/Equipment/Inventory

     —           —           1         24   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     87       $ 9,221         12       $ 597   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of December 31, 2013    Accruing Loans      Non-Accruing Loans  

Collateral type:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Raw Land

     —         $ —           1       $ 16   

Hotel & Motel

     1         172         —           —     

Retail, including Strip Centers

     2         283         1         134   

1-4 Family Residential

     73         7,954         7         469   

Automobile/Equipment/Inventory

     —           —           2         67   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     76       $ 8,409         11       $ 686   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of June 30, 2013    Accruing Loans      Non-Accruing Loans  

Collateral type:

   #      Balance
(in thousands)
     #      Balance
(in thousands)
 

Raw Land

     1       $ 366         1       $ 10   

Hotel & Motel

     1         170         —           —     

Retail, including Strip Centers

     2         277         1         19   

1-4 Family Residential

     65         9,400         2         122   

Automobile/Equipment/Inventory

     1         40         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     70       $ 10,253         4       $ 151   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Allowance for Loan Losses

The allowance for loan losses represents an allowance for probable incurred losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on non-accruing, past due and other loans that management believes might be potentially impaired or warrant additional attention. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio. In addition, based on internal reviews and external reviews performed by 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. Relationships greater than $250,000 are reviewed annually by the Bank’s independent internal loan review department or an independent third party loan review firm. As a result of these loan reviews, certain loans may be identified as having deteriorating credit quality. Other loans that surface as problem loans may also be assigned specific reserves. Past due loans are assigned risk ratings based on the number of days past due. The calculation of the allowance for loan losses, including underlying data and assumptions, is reviewed regularly by the Company’s Chief Financial Officer and the loan review department.

Loan losses are charged against the allowance when management believes the collection of a loan’s principal is unlikely. Subsequent recoveries are credited to the allowance. Consumer loans are charged-off in accordance with the Federal Financial Institutions Examination Council’s (“FFIEC”) Uniform Retail Credit Classification and Account Management Policy. Commercial loans are charged-off when they are deemed uncollectible, which usually involves a triggering event within the collection effort. If the loan is collateral dependent, the loss is more easily identified and is charged-off when it is identified, usually based upon receipt of an appraisal. However, when a loan has guarantor support, the Company may carry the estimated loss as a reserve against the loan while collection efforts with the guarantor are pursued. If, after collection efforts with the guarantor are complete, the deficiency is still considered uncollectible, the loss is charged-off and any further collections are treated as recoveries. In all situations, when a loan is downgraded to an Asset Quality Rating of 60 (Loss per the regulatory guidance), the uncollectible portion is charged-off.

During the six months ended June 30, 2014, the year ended December 31, 2013 and the six months ended June 30, 2013, the Company recorded provision for loan loss expense of $593,000, $1.5 million and $790,000, 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. Charge-offs on purchased covered loans are recorded when impairment is recorded and provision expense is recorded net of the indemnification by the FDIC loss-share agreements.

 

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Table of Contents

The following table details activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2014, the year ended December 31, 2013 and the six months ended June 30, 2013. 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, 2014

   $ 1,823      $ 5,538      $ 8,393      $ 6,034      $ 589      $ 22,377   

Provision for loan losses

     1,087        (89     1,074        (66     492        2,498   

Loans charged off

     (908     (222     (1,302     (933     (214     (3,579

Recoveries of loans previously charged off

     183        204        152        131        288        958   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2014

   $ 2,185      $ 5,431      $ 8,317      $ 5,166      $ 1,155      $ 22,254   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period-end amount allocated to:

            

Loans individually evaluated for impairment

   $ 282      $ 710      $ 1,652      $ 801      $ —        $ 3,445   

Loans collectively evaluated for impairment

     1,903        4,721        6,665        4,365        1,155        18,809   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 2,185      $ 5,431      $ 8,317      $ 5,166      $ 1,155      $ 22,254   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

            

Individually evaluated for impairment

   $ 855      $ 3,264      $ 16,865      $ 11,538      $ —        $ 32,522   

Collectively evaluated for impairment

     303,733        146,082        833,135        411,193        43,394        1,737,537   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 304,588      $ 149,346      $ 850,000      $ 422,731      $ 43,394      $ 1,770,059   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     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

     711        1,742        2,777        4,463        254        9,947   

Loans charged off

     (1,759     (2,020     (3,571     (5,215     (719     (13,284

Recoveries of loans previously charged off

     432        473        30        888        298        2,121   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2013

   $ 1,823      $ 5,538      $ 8,393      $ 6,034      $ 589      $ 22,377   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period-end amount allocated to:

            

Loans individually evaluated for impairment

   $ 356      $ 407      $ 1,427      $ 1,395      $ —        $ 3,585   

Loans collectively evaluated for impairment

     1,467        5,131        6,966        4,639        589        18,792   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 1,823      $ 5,538      $ 8,393      $ 6,034      $ 589      $ 22,377   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

            

Individually evaluated for impairment

   $ 3,457      $ 3,581      $ 15,240      $ 16,925      $ —        $ 39,203   

Collectively evaluated for impairment

     240,916        142,790        793,083        349,957        52,505        1,579,251   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 244,373      $ 146,371      $ 808,323      $ 366,882      $ 52,505      $ 1,618,454   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34


Table of Contents
     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

     1,118        1,526        1,420        2,340        (106     6,298   

Loans charged off

     (734     (1,231     (1,793     (2,107     (371     (6,236

Recoveries of loans previously charged off

     128        4        13        229        188        562   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

   $ 2,951      $ 5,642      $ 8,797      $ 6,360      $ 467      $ 24,217   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period-end amount allocated to:

            

Loans individually evaluated for impairment

   $ 876      $ 467      $ 1,629      $ 1,573      $ —        $ 4,545   

Loans collectively evaluated for impairment

     2,075        5,175        7,168        4,787        467        19,672   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 2,951      $ 5,642      $ 8,797      $ 6,360      $ 467      $ 24,217   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

            

Individually evaluated for impairment

   $ 3,705      $ 3,935      $ 15,842      $ 15,329      $ —        $ 38,811   

Collectively evaluated for impairment

     204,719        130,672        772,812        342,356        66,457        1,517,016   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 208,424      $ 134,607      $ 788,654      $ 357,685      $ 66,457      $ 1,555,827   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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.

 

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Table of Contents

The following table summarizes components of all covered assets at June 30, 2014, December 31, 2013 and June 30, 2013 and their origin:

 

    Covered
loans
    Less: Fair
value
adjustments
    Total
covered
loans
    OREO     Less: Fair
value
adjustments
    Total
covered
OREO
    Total
covered
assets
    FDIC
indemnification
asset
 
    (Dollars in Thousands)  

As of June 30, 2014:

 

AUB

  $ 9,106      $ 133      $ 8,973      $ 1,690      $ —        $ 1,690      $ 10,663      $ 1,676   

USB

    14,030        805        13,225        2,927        62        2,865        16,090        920   

SCB

    30,545        954        29,591        3,332        308        3,024        32,615        3,073   

FBJ

    23,264        2,696        20,568        1,734        135        1,599        22,167        2,752   

DBT

    81,700        8,774        72,926        12,766        913        11,853        84,779        10,119   

TBC

    28,363        1,853        26,510        4,493        758        3,735        30,245        3,543   

HTB

    59,267        6,535        52,732        4,130        1,349        2,781        55,513        9,000   

OGB

    49,501        4,937        44,564        7,964        2,984        4,980        49,544        7,268   

CBG

    71,959        9,798        62,161        7,432        1,533        5,899        68,060        10,829   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 367,735      $ 36,485      $ 331,250      $ 46,468      $ 8,042      $ 38,426      $ 369,676      $ 49,180   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Covered
loans
    Less: Fair
value
adjustments
    Total
covered
loans
    OREO     Less: Fair
value
adjustments
    Total
covered
OREO
    Total
covered
assets
    FDIC
indemnification
asset
 
    (Dollars in Thousands)  

As of December 31, 2013:

 

AUB

  $ 15,787      $ 231      $ 15,556      $ 4,264      $ —        $ 4,264      $ 19,820      $ 1,452   

USB

    18,504        1,427        17,077        2,865        141        2,724        19,801        889   

SCB

    34,637        1,483        33,154        3,461        303        3,158        36,312        3,175   

FBJ

    25,891        3,730        22,161        1,880        242        1,638        23,799        3,689   

DBT

    105,157        17,819        87,338        17,023        1,282        15,741        103,079        18,724   

TBC

    32,590        2,354        30,236        4,844        745        4,099        34,335        3,721   

HTB

    67,126        7,359        59,767        6,374        2,304        4,070        63,837        9,325   

OGB

    58,512        5,067        53,445        7,506        2,984        4,522        57,967        9,645   

CBG

    85,118        13,615        71,503        7,610        1,933        5,677        77,180        14,821   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 443,322      $ 53,085      $ 390,237      $ 55,827      $ 9,934      $ 45,893      $ 436,130      $ 65,441   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

36


Table of Contents
     Covered
loans
     Less: Fair
value
adjustments
     Total
covered
loans
     OREO      Less: Fair
value
adjustments
     Total
covered
OREO
     Total
covered
assets
     FDIC
indemnification
asset
 
     (Dollars in Thousands)  

As of June 30, 2013:

  

AUB

   $ 23,721       $ 2,114       $ 21,607       $ 4,847       $ —         $ 4,847       $ 26,454       $ 4,526   

USB

     23,298         2,552         20,746         4,127         140         3,987         24,733         5,802   

SCB

     38,478         2,882         35,596         4,655         306         4,349         39,945         4,603   

FBJ

     29,154         5,086         24,068         2,037         209         1,828         25,896         5,632   

DBT

     132,707         27,386         105,321         23,594         2,003         21,591         126,912         27,957   

TBC

     37,560         3,299         34,261         7,069         1,650         5,419         39,680         6,083   

HTB

     74,867         9,747         65,120         10,868         3,436         7,432         72,552         13,314   

OGB

     70,644         11,568         59,076         10,244         3,948         6,296         65,372         14,591   

CBG

     99,363         21,641         77,722         8,519         2,090         6,429         84,151         23,005   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 529,792       $ 86,275       $ 443,517       $ 75,960       $ 13,782       $ 62,178       $ 505,695       $ 105,513   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

On the dates of acquisition, the Company estimated the future cash flows on each individual loan and made the necessary adjustments to reflect the asset at fair value. At each quarter end subsequent to the acquisition dates, the Company revises the estimates of future cash flows based on current information and makes the necessary adjustments to carrying value. Amounts reflected in the Company’s statement of earnings are net of indemnification provided under loss share agreements with the FDIC. The adjustments are performed on a loan-by-loan basis and have resulted in the following adjustments for the six months ended June 30, 2014, the year ended December 31, 2013 and the six months ended June 30, 2013:

 

Total Amounts

   June 30,
2014
     December 31,
2013
     June 30,
2013
 
     (Dollars in Thousands)  

Adjustments needed where the Company’s initial estimate of cash flows were underestimated: (recorded with a reclassification from non-accretable difference to accretable discount to be accreted into income over remaining term of the loan)

   $ 5,850       $ 51,003       $ 39,278   

Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)

     2,965         7,695         3,950   

Amounts reflected in the Company’s Statement of Operations

   June 30,
2014
     December 31,
2013
     June 30,
2013
 
     (Dollars in Thousands)  

Adjustments needed where the Company’s initial estimate of cash flows were underestimated: (recorded with a reclassification from non-accretable difference to accretable discount to be accreted into income over remaining term of the loan)

   $ 1,170       $ 10,201       $ 2,942   

Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)

     593         1,539         790   

 

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A rollforward of covered loans with deterioration of credit quality for the six months ended June 30, 2014, the year ended December 31, 2013 and the six months ended June 30, 2013 is shown below:

 

(Dollars in Thousands)

   June 30,
2014
    December 31,
2013
    June 30,
2013
 

Balance, January 1

   $ 217,047      $ 282,737      $ 282,737   

Charge-offs, net of recoveries

     (1,364     35,306        (8,464

Additions due to acquisitions

     —         —          —    

Other (loan payments, transfers, etc.)

     (37,053     (100,996     (24,658
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 178,630      $ 217,047      $ 249,615   
  

 

 

   

 

 

   

 

 

 

A rollforward of covered loans without deterioration of credit quality for the six months ended June 30, 2014, the year ended December 31, 2013 and the six months ended June 30, 2013 is shown below:

 

(Dollars in Thousands)

   June 30,
2014
    December 31,
2013
    June 30,
2013
 

Balance, January 1

   $ 173,190      $ 228,602      $ 228,602   

Additions due to acquisitions

     —          —          —     

Loan payments, transfers, etc.

     (20,570     (55,412     (34,404
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 152,620      $ 173,190      $ 194,198   
  

 

 

   

 

 

   

 

 

 

The following is a summary of changes in the accretable discounts of covered loans during the six months ended June 30, 2014, the year ended December 31, 2013 and the six months ended June 30, 2013:

 

(Dollars in Thousands)

   June 30,
2014
    December 31,
2013
    June 30,
2013
 

Balance, January 1

   $ 25,493      $ 16,698      $ 16,698   

Additions due to acquisitions

     —          —          —     

Accretion

     (15,432     (42,208     (25,841

Other activity, net

     5,850        51,003        39,278   
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 15,911      $ 25,493      $ 30,135   
  

 

 

   

 

 

   

 

 

 

The shared-loss agreements are subject to the servicing procedures as specified in the agreement with the FDIC. The expected reimbursements under the shared-loss agreements were recorded as an indemnification asset at their estimated fair values on the acquisition dates. As of June 30, 2014, the Company has recorded a clawback liability of $5.2 million, which represents the obligation of the Company to reimburse the FDIC should actual losses be less than certain thresholds established in each loss share agreement. Changes in the FDIC shared-loss receivable for the six months ended June 30, 2014, for the year ended December 31, 2013 and for the six months ended June 30, 2013 are as follows:

 

(Dollars in Thousands)

   June 30,
2014
    December 31,
2013
    June 30,
2013
 

Balance, January 1

   $ 65,441      $ 159,724      $ 159,724   

Indemnification asset recorded in acquisitions

     —          —          —     

Payments received from FDIC

     (10,576     (68,822     (45,604

Effect of change in expected cash flows on covered assets

     (5,685     (25,461     (8,607
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 49,180      $ 65,441      $ 105,513   
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents

NOTE 6 – WEIGHTED AVERAGE SHARES OUTSTANDING

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

 

     For the Three Months
Ended June 30,
     For the Six Months
Ended June 30,
 
     2014      2013      2014      2013  
     (Share Data in
Thousands)
     (Share Data in
Thousands)
 

Basic shares outstanding

     25,181         23,879         25,163         23,873   

Plus: Dilutive effect of ISOs

     120         346         118         346   

Plus: Dilutive effect of Restricted grants

     271         63         271         63   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted shares outstanding

     25,572         24,288         25,552         24,282   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the three month periods ended June 30, 2014 and 2013, the Company has excluded 119,000 and 233,000, respectively, potential common shares with strike prices that would cause them to be anti-dilutive. For the six month periods ended June 30, 2014 and 2013, the Company has excluded 120,000 and 246,000, respectively, potential common shares with strike prices that would cause them to be anti-dilutive.

NOTE 7 – OTHER BORROWINGS

The Company has, from time to time, utilized certain borrowing arrangements with various financial institutions to fund growth in earning assets or provide additional liquidity when appropriate spreads can be realized. At June 30, 2014 and December 31, 2013, there were $100.3 million and $194.6 million, respectively, outstanding borrowings with the Company’s correspondent banks. At June 30, 2013, there were no outstanding borrowings with the Company’s correspondent banks.

Details of other borrowings, including contractual interest rates and maturity dates are included in the following table:

 

(Dollars in Thousands)

   June 30,
2014
     December 31,
2013
     June 30,
2013
 

Daily Rate Credit from Federal Home Loan Bank with a fixed interest rate of 0.36%

   $ 40,000       $ —         $ —     

Advance from Federal Home Loan Bank with a fixed interest rate of 0.20%, due July 2, 2014

     5,000         —           —     

Advance from Federal Home Loan Bank with a fixed interest rate of 0.21%, due July 16, 2014

     5,000         —           —     

Advance from Federal Home Loan Bank with a fixed interest rate of 0.19%, due July 23, 2014

     3,000         —           —     

Advance from Federal Home Loan Bank with a fixed interest rate of 0.17%, due January 24, 2014

     —           165,000         —     

Advances under revolving credit agreement with a regional bank with interest at 90-day LIBOR plus 4.00% (4.23% at June 30, 2014) due in August 2016, secured by subsidiary bank stock

     22,500         10,000         —     

Advance from correspondent bank with a fixed interest rate of 4.50%, due November 27, 2017, secured by subsidiary bank loan receivable

     4,936         —           —     

Subordinated debt issued by Prosperity Bank due June 2016 with an interest rate of 90-day LIBOR plus 1.60% (1.84% at June 30, 2014)

     5,000         5,000         —     

Subordinated debt issued by The Prosperity Banking Company due September 2016 with an interest rate of 90-day LIBOR plus 1.75% (1.98% at June 30, 2014)

     14,857         14,572         —     
  

 

 

    

 

 

    

 

 

 

Total

   $ 100,293       $ 194,572       $ —     
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

NOTE 8 – COMMITMENTS

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

The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company uses the same credit policies in making commitments and conditional obligations as are used for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company issues standby letters of credit, which are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and expire in decreasing amounts with varying terms. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds various assets as collateral supporting those commitments for which collateral is deemed necessary.

The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held may include accounts receivable, inventory, property, plant and equipment, residential real estate and income-producing commercial properties.

The Company’s commitments to extend credit and standby letters of credit are presented in the following table:

 

(Dollars in Thousands)

   June 30,
2014
     December 31,
2013
     June 30,
2013
 

Commitments to extend credit

   $ 285,071       $ 257,195       $ 193,515   

Standby letters of credit

   $ 8,392       $ 7,665       $ 7,142   

NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income for the Company consists of changes in net unrealized gains and losses on investment securities available for sale and interest rate swap derivatives. The following tables present a summary of the accumulated other comprehensive income balances, net of tax, as of June 30, 2014 and 2013:

 

(Dollars in Thousands)

  Unrealized Gain (Loss)
on Derivatives
    Unrealized Gain (Loss)
on Securities
    Accumulated Other
Comprehensive
Income (Loss)
 

Balance, January 1, 2014

  $ 1,397      $ (1,691   $ (294

Reclassification for gains included in net income

    —          (4     (4

Current year changes

    (638     5,059        4,421   
 

 

 

   

 

 

   

 

 

 

Balance, June 30, 2014

  $ 759      $ 3,364      $ 4,123   
 

 

 

   

 

 

   

 

 

 

(Dollars in Thousands)

  Unrealized Gain (Loss)
on Derivatives
    Unrealized Gain (Loss)
on Securities
    Accumulated Other
Comprehensive
Income (Loss)
 

Balance, January 1, 2013

  $ (23   $ 6,630      $ 6,607   

Reclassification for gains included in net income

    —          (111     (111

Current year changes

    1,204        (4,118     (2,914
 

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

  $ 1,181      $ 2,401      $ 3,582   
 

 

 

   

 

 

   

 

 

 

 

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Table of Contents

NOTE 10 – 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 earnings and comprehensive income under the heading “Interest income – interest and fees on loans”. The servicing value is included in the fair value of the Interest Rate Lock Commitments (“IRLCs”) with borrowers. The mark to market adjustments related to 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:

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. It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Mortgage Loans Held for Sale: The Company records mortgage loans held for sale at fair value. 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.

 

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Table of Contents

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.

FDIC Loss-Share Receivable: The fair value of the FDIC loss-share receivable is based on the net present value of projected future cash flows expected to be received from the FDIC under the provision of the loss-share agreements using a discount rate that is based on current market rates.

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 fair value of the Company’s variable rate trust preferred securities is based primarily upon discounted cash flows using rates for securities with similar terms and remaining maturities.

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

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

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

Although the Company has determined that the majority of the inputs used to value its derivatives 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, 2014, December 31, 2013 and June 30, 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.

 

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Table of Contents

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, 2014 Using:  
     Carrying
Amount
     Level 1      Level 2      Level 3      Total  
     (Dollars in Thousands)  

Financial assets:

              

Cash and due from banks

   $ 80,986       $ 80,986       $ —         $ —         $ 80,986   

Federal funds sold and interest-bearing accounts

   $ 44,800       $ 44,800       $ —         $ —         $ 44,800   

Loans, net

   $ 2,745,897       $ —         $ 2,754,953       $ —         $ 2,754,953   

FDIC loss-share receivable

   $ 49,180       $ —         $ —         $ 46,242       $ 46,242   

Financial liabilities:

              

Deposits

     3,389,035         —           3,389,880         —           3,389,880   

Securities sold under agreements to repurchase

     51,109         51,109         —           —           51,109   

Other borrowings

     100,293         —           100,293         —           100,293   

Subordinated deferrable interest debentures

     64,842         —           45,864         —           45,864   

 

            Fair Value Measurements at December 31, 2013 Using:  
     Carrying
Amount
     Level 1      Level 2      Level 3      Total  
     (Dollars in Thousands)  

Financial assets:

              

Cash and due from banks

   $ 62,955       $ 62,955       $ —         $ —         $ 62,995   

Federal funds sold and interest-bearing accounts

   $ 204,984       $ 204,984       $ —         $ —         $ 204,984   

Loans, net

   $ 2,392,521       $ —         $ 2,404,909       $ —         $ 2,404,909   

FDIC loss-share receivable

   $ 65,441       $ —         $ —         $ 61,317       $ 61,317   

Financial liabilities:

              

Deposits

     2,999,231         —           3,000,061         —           3,000,061   

Securities sold under agreements to repurchase

     83,516         83,516         —           —           83,516   

Other borrowings

     194,572         —           194,572         —           194,572   

Subordinated deferrable interest debentures

     55,466         —           36,277         —           36,277   

 

43


Table of Contents
            Fair Value Measurements at June 30, 2013 Using:  
     Carrying
Amount
     Level 1      Level 2      Level 3      Total  
     (Dollars in Thousands)  

Financial assets:

              

Cash and due from banks

   $ 50,343       $ 50,343       $ —         $ —         $ 50,343   

Federal funds sold and interest-bearing accounts

   $ 43,904       $ 43,904       $ —         $ —         $ 43,904   

Loans, net

   $ 1,930,373       $ —         $ 1,956,198       $ —         $ 1,956,198   

FDIC loss-share receivable

   $ 105,513       $ —         $ —         $ 99,558       $ 99,558   

Financial liabilities:

              

Deposits

     2,443,103         —           2,444,263         —           2,444,263   

Securities sold under agreements to repurchase

     19,142         19,412         —           —           19,412   

Subordinated Deferrable Interest Debentures

     42,269         —           23,231         —           23,231   

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, 2014, December 31, 2013 and June 30, 2013 (dollars in thousands):

 

     Fair Value Measurements on a Recurring Basis
As of June 30, 2014
 
     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

   $ 14,445       $ —         $ 14,445       $ —     

State, county and municipal securities

     145,780         —           145,780         —     

Corporate debt securities

     10,958         —           8,958         2,000   

Mortgage-backed securities

     364,447         —           364,447         —     

Mortgage loans held for sale

     81,491         —           81,491         —     

IRLCs and forward contracts

     2,625         —           2,625         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring assets at fair value

   $ 619,746       $ —         $ 617,746       $ 2,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments

   $ 1,142       $ —         $ 1,142       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring liabilities at fair value

   $ 1,142       $ —         $ 1,142       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Fair Value Measurements on a Recurring Basis
As of December 31, 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

   $ 13,926       $ —         $ 13,926       $ —     

State, county and municipal securities

     112,754         —           112,754         —     

Collateralized debt obligations

     1,480         1,480         —           —     

Corporate debt securities

     10,325         —           8,325         2,000   

Mortgage-backed securities

     347,750         182,461         165,289         —     

Mortgage loans held for sale

     67,278         —           67,278         —     

IRLCs and forward contracts

     1,180         —           1,180         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring assets at fair value

   $ 554,693       $ 183,941       $ 368,752       $ 2,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments

   $ 370       $ —         $ 370       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring liabilities at fair value

   $ 370       $ —         $ 370       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     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         —     

IRLCs and forward contracts

     1,600         —           1,600         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring assets at fair value

   $ 380,348       $ 2,447       $ 375,901       $ 2,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments

   $ 916       $ —         $ 916       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring liabilities at fair value

   $ 916       $ —         $ 916       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

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, 2014, December 31, 2013 and June 30, 2013 (dollars in thousands):

 

     Fair Value Measurements on a Nonrecurring Basis
As of June 30, 2014
 
     Fair
Value
     Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Impaired loans carried at fair value

   $ 35,829       $ —         $ —         $ 35,829   

Other real estate owned

     35,373         —           —           35,373   

Purchased, non-covered other real estate owned

     16,598         —           —           16,598   

Covered other real estate owned

     38,426         —           —           38,426   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring assets at fair value

   $ 126,226       $ —         $ —         $ 126,226   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Fair Value Measurements on a Nonrecurring Basis
As of December 31, 2013
 
     Fair
Value
     Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Impaired loans carried at fair value

   $ 42,546       $ —         $ —         $ 42,546   

Other real estate owned

     33,351         —           —           33,351   

Purchased, non-covered other real estate owned

     4,276         —           —           4,276   

Covered other real estate owned

     45,893         —           —           45,893   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring assets at fair value

   $ 126,066       $ —         $ —         $ 126,066   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value Measurements on a Nonrecurring 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)
 

Impaired loans carried at fair value

   $ 44,754       $ —         $ —         $ 44,754   

Other real estate owned

     39,885         —           —           39,885   

Covered other real estate owned

     62,178         —           —           62,178   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring assets at fair value

   $ 146,817       $ —         $ —         $ 146,817   
  

 

 

    

 

 

    

 

 

    

 

 

 

The inputs used to determine estimated fair value of impaired loans include market conditions, loan terms, underlying collateral characteristics and discount rates. The inputs used to determine fair value of other real estate owned, purchased non-covered 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 six months ended June 30, 2014 and 2013, 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
June 30,
2014
    

Valuation Technique

  

Unobservable Inputs

   Range
(Dollars in Thousands)

Nonrecurring:

           

Impaired loans

   $ 35,289       Third party appraisals and discounted cash flows    Collateral discounts and discount rates    4.00% - 75.00%

Other real estate owned

   $ 35,373       Third party appraisals    Collateral discounts and estimated costs to sell    10.00% - 74.00%

Purchased non-covered other real estate owned

   $ 16,598       Third party appraisals    Collateral discounts and estimated costs to sell    21.00% - 70.00%

Covered real estate owned

   $ 38,426       Third party appraisals    Collateral discounts and estimated costs to sell    10.00% - 90.00%

Recurring:

           

Investment securities available for sale

   $ 2,000       Discounted par values    Credit quality of underlying issuer    0.00%

 

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Table of Contents

NOTE 11 – SEGMENT REPORTING

The following tables present selected financial information with respect to the Company’s reportable business segments for the three- month periods ended June 30, 2014 and 2013:

 

     Three Months Ended
June 30, 2014
     Three Months Ended
June 30, 2013
 
     Retail
Banking
     Mortgage
Banking
     Total      Retail
Banking
     Mortgage
Banking
     Total  
     (Dollars in Thousands)  

Net interest income

   $ 33,925       $ 1,339       $ 35,264       $ 28,517       $ 959       $ 29,476   

Provision for loan losses

     1,365         —           1,365         4,165         —           4,165   

Noninterest income

     8,817         7,002         15,819         6,383         5,001         11,384   

Noninterest expense:

                 

Salaries and employee benefits

     13,005         3,937         16,942         10,478         2,903         13,381   

Equipment and occupancy expenses

     3,771         300         4,071         2,781         197         2,978   

Data processing and telecommunications expenses

     3,597         343         3,940         2,634         202         2,836   

Other expenses

     11,053         1,312         12,365         6,444         1,049         7,493   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total noninterest expense

     31,426         5,892         37,318         22,337         4,351         26,688   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax expense

     9,951         2,449         12,400         8,398         1,609         10,007   

Income tax expense

     3,413         857         4,270         2,766         563         3,329   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

     6,538         1,592         8,130         5,632         1,046         6,678   

Less preferred stock dividends

     —           —           —           442         —           442   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 6,538       $ 1,592       $ 8,130       $ 5,190       $ 1,046       $ 6,236   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 3,797,850       $ 175,285       $ 3,973,135       $ 2,695,554       $ 113,121       $ 2,808,675   

Stockholders’ equity

     345,256         1,857         343,399         286,127         1,650         287,777   

The following tables present selected financial information with respect to the Company’s reportable business segments for the six- month periods ended June 30, 2014 and 2013:

 

     Six Months Ended
June 30, 2014
     Six Months Ended
June 30, 2013
 
     Retail
Banking
     Mortgage
Banking
     Total      Retail
Banking
     Mortgage
Banking
     Total  
     (Dollars in Thousands)  

Net interest income

   $ 67,309       $ 2,439       $ 69,748       $ 56,283       $ 1,531       $ 57,814   

Provision for loan losses

     3,091         —           3,091         7,088         —           7,088   

Noninterest income

     16,407         12,166         28,573         13,279         9,465         22,744   

Noninterest expense:

                 

Salaries and employee benefits

     26,831         7,505         34,336         21,515         5,672         27,187   

Equipment and occupancy expenses

     7,533         602         8,135         5,546         363         5,909   

Data processing and telecommunications expenses

     6,929         465         7,394         5,105         301         5,406   

Other expenses

     18,565         2,127         20,692         15,334         1,736         17,070   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total noninterest expense

     59,858         10,699         70,557         47,500         8,072         55,572   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax expense

     20,767         3,906         24,673         14,974         2,924         17,898   

Income tax expense

     6,826         1,367         8,193         4,912         1,023         5,935   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

     13,941         2,539         16,480         10,062         1,901         11,963   

Less preferred stock dividends

     286         —           286         883         —           883   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 13,655       $ 2,539       $ 16,194       $ 9,179       $ 1,901       $ 11,080   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

47


Table of Contents

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

Cautionary Note Regarding Any Forward-Looking Statements

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

All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation, legislative and regulatory initiatives; additional competition in our markets; potential business strategies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by Ameris; state and federal banking regulations; changes in or application of environmental and other laws and regulations to which Ameris is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather, natural disasters and other catastrophic events; and other factors discussed in our filings with the Securities and Exchange Commission under the Exchange Act.

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

Overview

The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of June 30, 2014 as compared to December 31, 2013 and operating results for the three-and six-month periods ended June 30, 2014 and 2013. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

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

 

48


Table of Contents
(in thousands, except share data, taxable equivalent)   Second
Quarter 2014
    First
Quarter 2014
    Fourth
Quarter 2013
    Third
Quarter 2013
    Second
Quarter 2013
    For Six Months Ended  
            June 30, 2014     June 30, 2013  

Results of Operations:

             

Net interest income

  $ 35,264      $ 34,484      $ 29,051      $ 29,320      $ 29,476      $ 69,748      $ 57,814   

Net interest income (tax equivalent)

    35,626        34,808        29,325        29,542        29,666        70,434        58,360   

Provision for loan losses

    1,365        1,726        1,478        2,920        4,165        3,091        7,088   

Non-interest income

    15,819        12,754        11,517        12,288        11,384        28,573        22,744   

Non-interest expense

    37,318        33,239        37,624        28,749        26,688        70,557        55,572   

Income tax expense

    4,270        3,923        88        3,262        3,329        8,193        5,935   

Preferred stock dividends

    —          286        412        443        442        286        883   

Net income available to common shareholders

    8,130        8,064        966        6,234        6,236        16,194        11,080   

Selected Average Balances:

             

Mortgage loans held for sale

  $ 54,517      $ 49,397      $ 65,683      $ 61,249      $ 48,890      $ 51,884      $ 40,765   

Loans, net of unearned income

    1,706,564        1,639,672        1,602,942        1,564,311        1,572,544        1,673,493        1,489,902   

Purchased non-covered loans

    433,249        441,138        43,900        —          —          437,068        —     

Covered loans

    354,766        379,460        401,045        427,482        444,616        367,045        468,024   

Investment securities

    468,129        462,343        327,993        312,541        321,582        465,252        331,021   

Earning assets

    3,075,204        3,091,546        2,625,178        2,439,771        2,397,834        3,081,909        2,413,192   

Assets

    3,494,466        3,521,588        2,937,434        2,806,799        2,820,863        3,507,952        2,853,494   

Deposits

    3,010,142        2,975,305        2,552,819        2,439,150        2,448,171        2,992,821        2,479,667   

Common shareholders’ equity

    309,696        290,462        248,429        246,489        251,240        304,222        251,227   

Period-End Balances:

             

Mortgage loans held for sale

  $ 81,491      $ 51,693      $ 67,278      $ 69,634      $ 62,580      $ 81,491      $ 62,580   

Loans, net of unearned income

    1,770,059        1,695,382        1,618,454        1,589,267        1,555,827        1,770,059        1,555,827   

Purchased non-covered loans

    702,131        437,269        448,753        —          —          702,131        —     

Covered loans

    331,250        372,694        390,237        417,649        443,517        331,250        443,517   

Earning assets

    3,465,361        3,062,428        3,215,941        2,462,697        2,421,996        3,465,361        2,421,996   

Total assets

    3,973,135        3,487,984        3,667,649        2,818,502        2,808,675        3,973,135        2,808,675   

Total deposits

    3,389,035        3,010,647        2,999,231        2,443,421        2,443,103        3,389,035        2,443,103   

Common shareholders’ equity

    343,399        300,030        288,699        262,418        259,932        343,399        259,932   

Per Common Share Data:

             

Earnings per share - basic

  $ 0.32      $ 0.32      $ 0.04      $ 0.26      $ 0.26      $ 0.64      $ 0.46   

Earnings per share - diluted

    0.32        0.32        0.04        0.26        0.26        0.63        0.46   

Common book value per share

    12.83        11.93        11.50        10.98        10.88        12.83        10.88   

End of period shares outstanding

    26,771,821        25,159,073        25,098,427        23,907,509        23,894,327        26,771,821        23,894,327   

Weighted average shares outstanding

             

Basic

    25,180,665        25,144,342        24,021,447        23,900,665        23,878,898        25,162,604        23,873,325   

Diluted

    25,572,405        25,573,320        24,450,619        24,315,821        24,287,628        25,552,469        24,282,055   

Market Price:

             

High closing price

  $ 23.90      $ 24.00      $ 21.42      $ 19.79      $ 16.94        24.00        16.94   

Low closing price

    19.73        19.86        17.69        17.35        13.16        19.73        12.79   

Closing price for quarter

    21.56        23.30        21.11        18.38        16.85        21.56        16.85   

Average daily trading volume

    79,038        103,279        94,636        75,545        53,403        90,963        52,669   

Closing price to book value

    1.68        1.95        1.84        1.67        1.55        1.68        1.55   

Performance Ratios:

             

Return on average assets

    0.93     0.96     0.19     0.94     0.95     0.95     0.85

Return on average common equity

    10.53     11.66     2.20     10.75     10.66     11.32     9.60

Average loans to average deposits

    84.68     84.35     82.79     84.17     82.39     84.52     80.60

Average equity to average assets

    8.86     9.04     9.41     9.78     9.93     8.67     9.80

Net interest margin (tax equivalent)

    4.65     4.57     4.43     4.80     4.96     4.61     4.88

Efficiency ratio (tax equivalent)

    73.05     70.36     92.74     69.09     65.32     71.76     68.98

 

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Table of Contents

Results of Operations for the Three Months Ended June 30, 2014 and 2013

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $8.1 million, or $0.32 per diluted share, for the quarter ended June 30, 2014, compared to $6.2 million, or $0.26 per diluted share, for the same period in 2013. The Company’s return on average assets and average shareholders’ equity of 0.93% and 10.53%, respectively, in the second quarter of 2014, compared to 0.95% and 10.66%, respectively, in the second quarter of 2013. During the second quarter of 2014, the Company completed the acquisition of Coastal Bankshares, Inc. (“Coastal”) and recorded approximately $1.9 million of after-tax merger related charges. The Company’s mortgage banking activities have had a significant impact on the overall financial results of the Company. Below is a more detailed analysis of the retail banking activities and mortgage banking activities of the Company during the second quarter of 2014 and 2013, respectively:

 

     Retail Banking      Mortgage Banking      Total  
     (in thousands)  

For the three months ended June 30, 2014:

        

Net interest income

   $ 33,925       $ 1,339       $ 35,264   

Provision for loan losses

     1,365         —           1,365   

Non-interest income

     8,817         7,002         15,819   

Non-interest expense

        

Salaries and employee benefits

     13,005         3,937         16,942   

Occupancy

     3,771         300         4,071   

Data processing

     3,597         343         3,940   

Other expenses

     11,053         1,312         12,365   
  

 

 

    

 

 

    

 

 

 

Total non-interest expense

     31,426         5,892         37,318   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

     9,951         2,449         12,400   

Income tax expense

     3,413         857         4,270   

Net income

     6,538         1,592         8,130   

Preferred stock dividends

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 6,538       $ 1,592       $ 8,130   
  

 

 

    

 

 

    

 

 

 

 

     Retail Banking      Mortgage Banking      Total  
     (in thousands)  

For the three months ended June 30, 2013:

        

Net interest income

   $ 28,517       $ 959       $ 29,476   

Provision for loan losses

     4,165         —           4,165   

Non-interest income

     6,383         5,001         11,384   

Non-interest expense

        

Salaries and employee benefits

     10,478         2,903         13,381   

Occupancy

     2,781         197         2,978   

Data processing

     2,634         202         2,836   

Other expenses

     6,444         1,049         7,493   
  

 

 

    

 

 

    

 

 

 

Total non-interest expense

     22,337         4,351         26,688   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

     8,398         1,609         10,007   

Income tax expense

     2,766         563         3,329   

Net income

     5,632         1,046         6,678   

Preferred stock dividends

     442         —           442   
  

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 5,190       $ 1,046       $ 6,236   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Net Interest Income and Margins

The following tables set forth the amount of our interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net interest margin on average interest-earning assets. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 35% federal tax rate.

 

     Quarter Ended June 30,  
     2013     2012  
     Average
Balance
     Interest
Income/
Expense
     Average
Yield/
Rate Paid
    Average
Balance
     Interest
Income/
Expense
     Average
Yield/
Rate Paid
 
     ( in Thousands)  

ASSETS

                

Interest-earning assets:

                

Loans

   $ 2,549,096       $ 35,550         5.59   $ 2,017,160       $ 29,929         5.95

Investment securities

     474,758         3,374         2.85        328,584         2,183         2.66   

Short-term assets

     51,350         45         0.35        52,090         29         0.22   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest- earning assets

     3,075,204         38,969         5.08        2,397,834         32,141         5.38   
  

 

 

    

 

 

      

 

 

    

 

 

    

Noninterest-earning assets

     419,262              423,029         
  

 

 

         

 

 

       

Total assets

   $ 3,494,466            $ 2,820,863         
  

 

 

         

 

 

       

LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Interest-bearing liabilities:

                

Savings and interest-bearing demand deposits

   $ 1,606,928       $ 1,053         0.26   $ 1,295,408       $ 834         0.26

Time deposits

     723,156         1,152         0.64        673,709         1,249         0.74   

Other borrowings

     35,280         415         4.72        —           —           —     

FHLB advances

     28,626         26         0.36        —           —           —     

Federal funds purchased and securities sold under agreements to repurchase

     40,008         31         0.31        20,530         29         0.57   

Subordinated deferrable interest debentures

     55,789         666         4.79        42,269         363         3.44   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     2,489,787         3,343         0.54        2,031,916         2,475         0.49   
  

 

 

    

 

 

      

 

 

    

 

 

    

Demand deposits

     680,058              479,054         

Other liabilities

     14,925              21,380         

Stockholders’ equity

     309,696              288,513         
  

 

 

         

 

 

       

Total liabilities and stockholders’ equity

   $ 3,494,466            $ 2,820,863         
  

 

 

         

 

 

       

Interest rate spread

           4.54           4.89
        

 

 

         

 

 

 

Net interest income

      $ 35,626            $ 29,666      
     

 

 

         

 

 

    

Net interest margin

           4.65           4.96
        

 

 

         

 

 

 

On a tax equivalent basis, net interest income for the second quarter of 2014 was $35.6 million, an increase of $5.9 million compared to $29.7 million reported in the same quarter in 2013. The higher net interest income is a result of the acquisition of The Prosperity Banking Company during the fourth quarter of 2013, along with steady yields on the loan portfolio, lower levels of excess liquidity than in previous quarters and steady decreases in the Company’s cost of funds. The Company’s net interest margin increased during the second quarter of 2014 to 4.65%, compared to 4.57% during the first quarter of 2014, but decreased compared to 4.96% reported in the second quarter of 2013.

 

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Total interest income, on a tax equivalent basis, during the second quarter of 2014 was $39.0 million compared to $32.1 million in the same quarter of 2013. Yields on earning assets fell slightly to 5.08%, compared to 5.38% reported in the second quarter of 2013. During the second quarter of 2014, loans comprised 82.9% of earning assets, compared to 84.1% in the same quarter of 2013. Increased lending activities have provided opportunities to grow the legacy loan portfolio. Yields on legacy loans decreased to 5.17% in the second quarter of 2014, compared to 5.37% in the same period of 2013. Covered loan yields declined from 8.18% in the second quarter of 2013 to 5.84% in the second quarter of 2014. The yield on purchased non-covered loans was 7.34% for the second quarter of 2014. Management anticipates improving economic conditions and increased loan demand will provide consistent interest income.

Total funding costs increased slightly to 0.42% in the second quarter of 2014, compared to 0.40% during the second quarter of 2013. Deposit costs decreased from 0.34% in the second quarter of 2013 to 0.29% in the second quarter of 2014, while non- deposit funding costs increased from 2.50% in the second quarter of 2013 to 2.86% in the second quarter of 2014. Continued shifts in the funding mix toward noninterest-bearing demand and other lower cost deposit categories were the primary reason for the decline in deposit costs. Ongoing efforts to maintain the percentage of funding from transaction deposits have succeeded such that non-CD deposits averaged 76.0% of total deposits in the second quarter of 2014, compared to 72.5% during the second quarter of 2013. Lower costs on deposits were realized due mostly to the lower rate environment and the Company’s ability to rely less on higher priced CDs due to its larger than normal position in short-term assets. Further opportunity to realize savings on deposits exists but may be limited due to current costs. Average balances of interest bearing deposits and their respective costs for the second quarter of 2014 and 2013 are shown below:

 

     June 30, 2014     June 30, 2013  
(Dollars in Thousands)    Average
Balance
     Average
Cost
    Average
Balance
     Average
Cost
 

NOW

   $ 691,353         0.17   $ 579,312         0.17

MMDA

     770,047         0.38     611,562         0.36

Savings

     145,528         0.11     104,534         0.11

Retail CDs < $100,000

     356,483         0.54     298,553         0.59

Retail CDs > $100,000

     360,703         0.70     358,980         0.75

Brokered CDs

     5,970         3.22     16,176         3.40
  

 

 

      

 

 

    

Interest-bearing deposits

   $ 2,330,084         0.38   $ 1,969,117         0.42
  

 

 

      

 

 

    

Provision for Loan Losses and Credit Quality

The Company’s provision for loan losses during the second quarter of 2014 amounted to $1.4 million, compared to $1.7 million in the first quarter of 2014 and $4.2 million in the second quarter of 2013. Although the Company has experienced improving trends in criticized and classified assets for several quarters, provision for loan losses continues to be required to account for loan growth and continued devaluation of real estate collateral. At June 30, 2014, classified loans still accruing totaled $42.6 million, compared to $26.3 million at June 30, 2013. This increase is predominately due to the addition of classified loans in the Prosperity Bank and Coastal Bank acquisitions. Non-accrual loans, excluding purchased non-covered and covered loans, totaled $22.1 million at June 30, 2014, a 30.5% decrease from $31.8 million reported at the end of the second quarter of 2013. Nonaccrual purchased non-covered loans totaled $15.8 million at June 30, 2014. There were no nonaccrual purchased non-covered loans at the end of the second quarter of 2013.

At June 30, 2014, other real estate owned (excluding purchased non-covered and covered OREO) totaled $35.4 million, compared to $33.8 million at March 31, 2014 and $39.9 million at June 30, 2013. Management regularly assesses the valuation of OREO through periodic reappraisal and through inquiries received in the marketing process. The Company has found that with a marketing window of three to six months, the liquidation of properties occurs between 85% and 100% of current book value. Certain properties, mostly raw land and subdivision lots, have extended marketing periods because of excessive inventory and record low home building activity. At the end of the second quarter of 2014, total non-performing assets were 2.26% of total assets, compared to 2.00% at December 31, 2013 and 2.55% at June 30, 2013. This increase is due to the Prosperity and Coastal acquisitions completed in the fourth quarter of 2013 and second quarter of 2014, respectively. Management continues to aggressively identify and resolve problem assets while seeking quality credits to grow the loan portfolio.

 

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Net charge-offs on loans during the second quarter of 2014 were $1.5 million, or 0.34% of loans on an annualized basis, compared to $2.9 million, or 0.74% of loans, in the second quarter of 2013. The Company’s allowance for loan losses at June 30, 2014 was $22.3 million, or 1.26% of loans (excluding purchased non-covered and covered loans), compared to $24.2 million, or 1.56% of loans (excluding purchased non-covered and covered loans), at June 30, 201.

Noninterest Income

Total non-interest income for the second quarter of 2014 was $15.8 million, compared to $11.4 million in the second quarter of 2013. Income from mortgage related activities continued to increase as a result of the Company’s increased number of mortgage bankers and higher levels of production. Service charges on deposit accounts in the second quarter of 2014 increased to $5.8 million, compared to $4.7 million in the second quarter of 2013. This increase was driven by the growth of core accounts through the acquisition of Prosperity Bank during the fourth quarter of 2013, along with higher balances in accounts subject to service charges.

Noninterest Expense

Total non-interest expenses for the second quarter of 2014 increased to $37.3 million, compared to $26.7 million in the same quarter in 2013. During the second quarter of 2014, the Company recorded $2.9 million of merger charges related to the Coastal acquisition. Other increases in noninterest expenses were primarily the result of the acquisition of Prosperity Bank during the fourth quarter of 2013 and additional expenses related to increases in mortgage volume. Salaries and benefits increased $3.6 million when compared to the second quarter of 2013. Occupancy and equipment expense increased during the quarter from $3.0 million in the second quarter of 2013 to $4.1 million in the second quarter of 2014. Data processing and telecommunications expenses increased to $3.9 million for the second quarter of 2014 from $2.8 million for the same period in 2013. Credit resolution related expenses, including problem loan and OREO expense and OREO write-downs and losses, increased to $2.8 million in the second quarter of 2014, compared to $2.3 million in the second quarter of 2013.

Income Taxes

Income tax expense is influenced by the amount of taxable income, the amount of tax-exempt income and the amount of non-deductible expenses. For the second quarter of 2014, the Company reported income tax expense of $4.3 million, compared to $3.3 million in the same period of 2013. The Company’s effective tax rate for the three months ending June 30, 2014 and 2013 was 34.4% and 33.3%, respectively.

 

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Results of Operations for the Six Months Ended June 30, 2014 and 2013

Ameris reported net income available to common shareholders of $16.2 million, or $0.63 per diluted share, for the six months ended June 30, 2014, compared to $11.1 million, or $0.46 per diluted share, for the same period in 2013. The Company’s mortgage banking activities have had a significant impact on the overall financial results of the Company. Below is a more detailed analysis of the retail banking activities and mortgage banking activities of the Company during the first six months of 2014 and 2013, respectively:

 

     Retail Banking      Mortgage Banking      Total  
            (in thousands)         

For the six months ended June 30, 2014:

        

Net interest income

   $ 67,309       $ 2,439       $ 69,748   

Provision for loan losses

     3,091         —           3,091   

Non-interest income

     16,407         12,166         28,573   

Non-interest expense

        

Salaries and employee benefits

     26,831         7,505         34,336   

Occupancy

     7,533         602         8,135   

Data processing

     6,929         465         7,394   

Other expenses

     18,565         2,127         20,692   
  

 

 

    

 

 

    

 

 

 

Total non-interest expense

     59,858         10,699         70,557   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

     20,767         3,906         24,673   

Income tax expense

     6,826         1,367         8,193   

Net income

     13,941         2,539         16,480   

Preferred stock dividends

     286         —           286   
  

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 13,655       $ 2,539       $ 16,194   
  

 

 

    

 

 

    

 

 

 

 

     Retail Banking      Mortgage Banking      Total  
            (in thousands)         

For the six months ended June 30, 2013:

        

Net interest income

   $ 56,283       $ 1,531       $ 57,814   

Provision for loan losses

     7,088         —           7,088   

Non-interest income

     13,279         9,465         22,744   

Non-interest expense

        

Salaries and employee benefits

     21,515         5,672         27,187   

Occupancy

     5,546         363         5,909   

Data processing

     5,105         301         5,406   

Other expenses

     15,334         1,736         17,070   
  

 

 

    

 

 

    

 

 

 

Total non-interest expense

     47,500         8,072         55,572   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

     14,974         2,924         17,898   

Income tax expense

     4,912         1,023         5,935   

Net income

     10,062         1,901         11,963   

Preferred stock dividends

     883         —           883   
  

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 9,179       $ 1,901       $ 11,080   
  

 

 

    

 

 

    

 

 

 

Interest Income

Interest income, on a tax equivalent basis, for the six months ended June 30, 2014 was $77.2 million, an increase of $14.6 million when compared to $62.6 million for the same period in 2013. Average earning assets for the six-month period increased $668.7 million to $3.08 billion as of June 30, 2014, compared to $2.41 billion as of June 30, 2013. The increase in average earning assets is due to the Prosperity acquisition completed in December 2013. Yield on average earning assets was 5.05% for the six months ended June 30, 2014, compared to 5.23% in the first six months of 2013.

Interest Expense

Total interest expense for the six months ended June 30, 2014 amounted to $6.7 million, reflecting a $1.7 million increase from the $5.0 million expense recorded in the same period of 2013. During the six-month period ended June 30, 2014, the Company’s funding costs increased slightly to 0.43% from 0.40% reported in 2013. Deposit costs decreased to 0.30% during the six month period ended June 30, 2014, compared to 0.35% during the same period in 2013. Total non-deposit funding costs increased from 2.14% during the first six months of 2013 to 2.56% during the first six months of 2014.

 

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Net Interest Income

The following tables set forth the amount of our interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net interest margin on average interest-earning assets. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 35% federal tax rate.

 

     Six Months Ended June 30,  
     2013     2012  
     Average
Balance
     Interest
Income/
Expense
     Average
Yield/
Rate Paid
    Average
Balance
     Interest
Income/
Expense
     Average
Yield/
Rate Paid
 
     ( in Thousands)  

ASSETS

                

Interest-earning assets:

                

Loans

   $ 2,529,490       $ 70,226         5.60   $ 1,998,691       $ 58,097         5.86

Investment securities

     473,296         6,811         2.90        337,866         4,386         2.62   

Short-term assets

     79,123         129         0.33        76,635         114         0.30   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest- earning assets

     3,081,909         77,166         5.05        2,413,192         62,597         5.23   
  

 

 

    

 

 

      

 

 

    

 

 

    

Noninterest-earning assets

     426,043              440,302         
  

 

 

         

 

 

       

Total assets

   $ 3,507,952            $ 2,853,494         
  

 

 

         

 

 

       

LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Interest-bearing liabilities:

                

Savings and interest-bearing demand deposits

   $ 1,587,303       $ 2,059         0.26   $ 1,311,880       $ 1,687         0.26

Time deposits

     732,205         2,329         0.64        687,387         2,622         0.77   

Other borrowings

     32,657         823         5.08        —           —           —     

FHLB advances

     48,370         63         0.26        —           —           —     

Federal funds purchased and securities sold under agreements to repurchase

     48,513         84         0.35        23,842         68         0.58   

Subordinated deferrable interest debentures

     55,442         1,374         5.00        42,269         633         3.02   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     2,504,490         6,732         0.54        2,065,378         5,010         0.49   
  

 

 

    

 

 

      

 

 

    

 

 

    

Demand deposits

     673,313              480,400         

Other liabilities

     14,511              21,715         

Stockholders’ equity

     315,638              286,001         
  

 

 

         

 

 

       

Total liabilities and stockholders’ equity

   $ 3,507,952            $ 2,853,494         
  

 

 

         

 

 

       

Interest rate spread

           4.51           4.74
        

 

 

         

 

 

 

Net interest income

      $ 70,434            $ 57,587      
     

 

 

         

 

 

    

Net interest margin

           4.61           4.81
        

 

 

         

 

 

 

For the year-to-date period ending June 30, 2014, the Company reported $70.4 million of net interest income on a tax equivalent basis, compared to $57.6 million of net interest income for the same period in 2013. The average balance of earning assets increased 27.7%, from $2.4 billion during the first six months of 2013 to $3.1 billion during the first six months of 2014. The Company’s net interest margin decreased to 4.61% in the six month period ending June 30, 2014, compared to 4.88% in the same period in 2013.

 

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Provision for Loan Losses

The provision for loan losses decreased to $3.1 million for the six months ended June 30, 2014, compared to $7.1 million in the same period in 2013. Non-performing assets (excluding covered assets) totaled $89.9 million at June 30, 2014, compared to $71.7 million at June 30, 2013. For the six-month period ended June 30, 2014, the Company had net charge-offs totaling $2.6 million, compared to $5.7 million for the same period in 2013. Annualized net charge-offs as a percentage of loans (excluding purchased non-covered and covered loans) decreased to 0.30% during the first six months of 2014, compared to 0.74% during the first six months of 2013.

Noninterest Income

Non-interest income for the first six months of 2014 was $28.6 million, compared to $22.7 million in the same period in 2013. Service charges on deposit accounts increased approximately $1.9 million to $11.4 million in the first six months of 2014, compared to $9.5 million in the same period in 2013. This increase was driven by the growth of core accounts through the acquisition of Prosperity Bank during the fourth quarter of 2013, along with higher balances in accounts subject to service charges. Income from mortgage banking activity increased from $9.5 million in the first six months of 2013 to $12.0 million in the first half of 2014, due to an increased number of mortgage bankers and higher levels of production.

Noninterest Expense

Total operating expenses for the first six months of 2014 increased to $70.6 million, compared to $55.6 million in the same period in 2013. During the second quarter of 2014, the Company recorded $2.9 million of merger charges related to the Coastal acquisition. Other increases in noninterest expenses were primarily the result of the acquisition of Prosperity Bank during the fourth quarter of 2013 and additional expenses related to increases in mortgage volume. Salaries and benefits increased $7.1 million when compared to the first half of 2013. Occupancy and equipment expenses for the first six months of 2014 amounted to $8.1 million, representing an increase of $2.2 million from the same period in 2013. Data processing and telecommunications expenses increased from $5.4 million in the first six months of 2013 to $7.4 million in the first six months of 2014. Credit resolution related expenses, including problem loan and OREO expense and OREO write-downs and losses, decreased to $5.0 million in the first six months of 2014, compared to $7.2 million in the first half of 2013.

Income Taxes

In the first six months of 2014, the Company recorded income tax expense of $8.2 million, compared to $5.9 million in the same period of 2013. The Company’s effective tax rate for the six months ended June 30, 2014 and 2013 was 33.2%.

Financial Condition as of June 30, 2014

Securities

Debt securities with readily determinable fair values are classified as available for sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income, net of the related deferred tax effect. Equity securities, including restricted equity securities, are classified as other investments and are recorded at cost.

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

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

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Substantially all of the unrealized losses on debt securities are related to changes in interest rates and do not affect the expected cash flows of the issuer or underlying collateral. All unrealized losses are considered temporary because each security carries an acceptable investment grade and the Company does not intend to sell these investment securities at an unrealized loss position at June 30, 2014, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at June 30, 2014, these investments are not considered impaired on an other-than temporary basis.

 

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

 

     Book Value      Fair Value      Yield     Modified
Duration
     Estimated Cash
Flows
12 months
 
     Dollars in Thousands  

June 30, 2014:

             

U.S. government agencies

   $ 14,950       $ 14,445         1.85     5.34       $ —     

State and municipal securities

     143,507         145,780         4.14     6.49         5,272   

Corporate debt securities

     10,805         10,958         6.40     7.44         1,250   

Mortgage-backed securities

     361,194         364,447         2.43     3.86         62,447   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

   $ 530,456       $ 535,630         2.96     4.69       $ 68,969   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

June 30, 2013:

             

U.S. government agencies

   $ 14,944       $ 14,335         1.85     6.13       $ —     

State and municipal securities

     109,793         112,759         3.69     5.55         7,599   

Corporate debt securities

     10,543         10,090         6.63     7.13         —     

Mortgage-backed securities

     177,196         178,984         2.49     3.61         35,741   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

   $ 312,476       $ 316,168         3.03     4.53       $ 43,340   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Loans and Allowance for Loan Losses

At June 30, 2014, gross loans outstanding (including mortgage loans held for sale and purchased non-covered and covered loans) were $2.88 billion, an increase from $2.52 billion reported at December 31, 2013 and $2.06 billion reported at June 30, 2013. Mortgage loans held for sale increased from $67.3 million at December 31, 2013 to $81.5 million at June 30, 2014. Legacy loans (excluding purchased non-covered and covered loans) increased $151.6 million, from $1.62 billion at December 31, 2013 to $1.77 billion at June 30, 2014. Purchased non-covered loans increased $253.4 million, from $448.8 million at December 31, 2013 to $702.1 million at June 30, 2014. Covered loans decreased $58.9 million, from $390.2 million at December 31, 2013 to $331.3 million at June 30, 2014.

The Company regularly monitors the composition of the loan portfolio to evaluate the adequacy of the allowance for loan losses in light of the impact that changes in the economic environment may have on the loan portfolio. The Company focuses on the following loan categories: (1) commercial, financial and agricultural; (2) residential real estate; (3) commercial and farmland real estate; (4) construction and development related real estate; and (5) consumer. The Company’s management has strategically located its branches in select markets in south and southeast Georgia, north Florida, southeast Alabama and throughout South Carolina to take advantage of the growth in these areas.

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

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

 

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

For the six-month period ended June 30, 2014, the Company recorded net charge-offs totaling $2.6 million, compared to $5.7 million for the period ended June 30, 2013. The provision for loan losses for the six months ended June 30, 2014 decreased to $3.1 million, compared to $7.1 million during the six-month period ended June 30, 2013. At the end of the second quarter of 2014, the allowance for loan losses totaled $22.3 million, or 1.26% of total legacy loans, compared to $22.4 million, or 1.38% of total legacy loans, at December 31, 2013 and $24.2 million, or 1.56% of total legacy loans, at June 30, 2013. The decrease in the allowance for loan losses as a percentage of non-covered loans reflects the improving credit quality trends in the loan portfolio.

The following table presents an analysis of the allowance for loan losses for the six months ended June 30, 2014 and 2013:

 

(Dollars in Thousands)

   June 30,
2014
    June 30,
2013
 

Balance of allowance for loan losses at beginning of period

   $ 22,377      $ 23,593   

Provision charged to operating expense

     2,498        6,298   

Charge-offs:

    

Commercial, financial and agricultural

     908        734   

Real estate – residential

     933        2,107   

Real estate – commercial and farmland

     1,302        1,793   

Real estate – construction and development

     222        1,231   

Consumer installment

     214        371   

Other

     —         —    
  

 

 

   

 

 

 

Total charge-offs

     3,579        6,236   
  

 

 

   

 

 

 

Recoveries:

    

Commercial, financial and agricultural

     183        128   

Real estate – residential

     131        229   

Real estate – commercial and farmland

     152        13   

Real estate – construction and development

     204        4   

Consumer installment

     288        188   

Other

     —         —    
  

 

 

   

 

 

 

Total recoveries

     958        562   
  

 

 

   

 

 

 

Net charge-offs

     2,621        5,674   
  

 

 

   

 

 

 

Balance of allowance for loan losses at end of period

   $ 22,254      $ 24,217   
  

 

 

   

 

 

 

Net annualized charge-offs as a percentage of average loans

     0.30     0.74

Allowance for loan losses as a percentage of loans at end of period

     1.26     1.56

Assets Covered by Loss-Sharing Agreements with the FDIC

Loans that were acquired in FDIC-assisted transactions that are covered by the loss-sharing agreements with the FDIC (“covered loans”) totaled $331.3 million, $390.2 million and $443.5 million at June 30, 2014, December 31, 2013 and June 30, 2013, respectively. OREO that is covered by the loss-sharing agreements with the FDIC totaled $38.4 million, $45.9 million and $62.2 million at June 30, 2014, December 31, 2013 and June 30, 2013, respectively. The loss-sharing agreements are subject to the servicing procedures as specified in the agreements with the FDIC. The expected reimbursements under the loss-sharing agreements were recorded as an indemnification asset at their estimated fair value on the acquisition dates. The FDIC loss-share receivable reported at June 30, 2014, December 31, 2013 and June 30, 2013 was $49.2 million, $65.4 million and $105.5 million, respectively.

 

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The Bank initially recorded the loans at their fair values, taking into consideration certain credit quality, risk and liquidity marks. The Company believes its estimation of credit risk and its adjustments to the carrying balances of the acquired loans is adequate. If the Company determines that a loan or group of loans has deteriorated from its initial assessment of fair value, a reserve for loan losses will be established to account for that difference. During the six months ended June 30, 2014, the year ended December 31, 2013 and the six months ended June 30, 2013, the Company recorded provision for loan loss expense of $593,000, $1.5 million and $790,000, respectively, to account for losses where the initial estimate of cash flows was found to be excessive on loans acquired in FDIC-assisted transactions. If the Company determines that a loan or group of loans has improved from its initial assessment of fair value, then the increase in cash flows over those expected at the acquisition date is recognized as interest income prospectively, with an associated write off of the remaining indemnification asset over the shorter of the life of the loan or the loss share agreement.

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

 

(Dollars in Thousands)

   June 30,
2014
     December 31,
2013
     June 30,
2013
 

Commercial, financial and agricultural

   $ 25,209       $ 26,550       $ 27,371   

Real estate – construction and development

     31,600         43,179         52,972   

Real estate – commercial and farmland

     188,643         224,451         255,102   

Real estate – residential

     85,518         95,173         107,107   

Consumer installment

     280         884         965   
  

 

 

    

 

 

    

 

 

 
   $ 331,250       $ 390,237       $ 443,517   
  

 

 

    

 

 

    

 

 

 

Non-Performing Assets

Non-performing assets include nonaccrual loans, accruing loans contractually past due 90 days or more, repossessed personal property and other real estate owned. Loans are placed on nonaccrual status when management has concerns relating to the ability to collect the principal and interest and generally when such loans are 90 days or more past due. Management performs a detailed review and valuation assessment of impaired loans on a quarterly basis and recognizes losses when permanent impairment is identified. A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract. When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against current income.

As of June 30, 2014, nonaccrual loans (excluding purchased non-covered and covered loans) totaled $22.1 million, a decrease of approximately $7.1 million since December 31, 2013. The decrease in nonaccrual loans is due to the success in the foreclosure and resolution process and a significant slowdown in the formation of new problem credits. Nonaccrual purchased non-covered loans totaled $15.8 million, an increase of approximately $9.1 million since December 31, 2013 due to the Coastal acquisition. Total non-performing assets as a percentage of total assets were 2.26%, 2.00% and 2.55% at June 30, 2014, December 31, 2013 and June 30, 2013, respectively.

Non-performing assets at June 30, 2014, December 31, 2013 and June 30, 2013 were as follows:

 

(Dollars in Thousands)

   June 30,
2014
     December 31,
2013
     June 30,
2013
 

Total nonaccrual loans (excluding purchased non-covered and covered loans)

   $ 22,111       $ 29,203       $ 31,811   

Nonaccrual purchased non-covered loans

     15,770         6,659         —     

Accruing loans delinquent 90 days or more

     —           —           —     

Foreclosed assets (excluding purchased assets)

     35,373         33,351         39,885   

Purchased, non-covered other real estate owned

     16,598         4,276         —     
  

 

 

    

 

 

    

 

 

 

Total non-performing assets

   $ 89,852       $ 73,489       $ 71,696   
  

 

 

    

 

 

    

 

 

 

 

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Commercial Lending Practices

On December 12, 2006, the Federal Bank Regulatory Agencies released guidance on Concentration in Commercial Real Estate Lending. This guidance defines commercial real estate (“CRE”) loans as loans secured by raw land, land development and construction (including 1-4 family residential construction), multi-family property and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property, excluding owner occupied properties (loans for which 50% or more of the source of repayment is derived from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property) or the proceeds of the sale, refinancing or permanent financing of the property. Loans for owner occupied CRE are generally excluded from the CRE guidance.

The CRE guidance is applicable when either:

 

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

 

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

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

As of June 30, 2014, the Company exhibited a concentration in the CRE loan category based on Federal Reserve Call codes. The primary risks of CRE lending are:

 

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

 

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

 

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

The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of June 30, 2014 and December 31, 2013. The loan categories and concentrations below are based on Federal Reserve Call codes and include purchased on-covered and covered loans:

 

     June 30, 2014     December 31, 2013  
(Dollars in Thousands)    Balance      % of Total
Loans
    Balance      % of Total
Loans
 

Construction and development loans

   $ 245,030         9   $ 220,726         9

Multi-family loans

     73,412         3     67,607         3

Nonfarm non-residential loans

     1,276,979         45     1,145,065         46
  

 

 

    

 

 

   

 

 

    

 

 

 

Total CRE Loans

     1,595,421         57     1,433,398         58

All other loan types

     1,208,019         43     1,024,046         42
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Loans

   $ 2,803,440         100   $ 2,457,444         100
  

 

 

    

 

 

   

 

 

    

 

 

 

The following table outlines the percentage of total CRE loans, net owner occupied loans to total risk-based capital, and the Company’s internal concentration limits as of June 30, 2014 and December 31, 2013:

 

     Internal
Limit
    June 30, 2014     December 31, 2013  
       Actual     Actual  

Construction and development

     100     71     70

Commercial real estate

     300     241     232

Short-Term Investments

The Company’s short-term investments are comprised of federal funds sold and interest-bearing balances. At June 30, 2014, the Company’s short-term investments were $44.8 million, compared to $205.0 million and $43.9 million at December 31, 2013 and June 30, 2013, respectively. The decrease in short-term investments during the first six months of 2014 is mostly due to the Company’s repayment of other borrowings that were recorded in the Prosperity acquisition. At June 30, 2014, $44.3 million of the balance was comprised of interest-bearing balances, the majority of which were at the Federal Reserve Bank of Atlanta.

 

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Derivative Instruments and Hedging Activities

The Company had a cash flow hedge that matures September 15, 2020 with a notional amount of $37.1 million at June 30, 2014, December 31, 2013 and June 30, 2013 for the purpose of converting the variable rate on the junior subordinated debentures to a fixed rate of 4.11%. The fair value of these instruments amounted to a liability of approximately $1.1 million, $370,000 and $916,000 at June 30, 2014, December 31, 2013 and June 30, 2013, respectively. The Company also had forward contracts and IRLCs to hedge changes in the value of the mortgage inventory due to changes in market interest rates. The fair value of these instruments amounted to an asset with a fair value of approximately $2.6 million, $1.2 million and $1.6 million at June 30, 2014, December 31, 2013 and June 30, 2013, respectively, No hedge ineffectiveness from cash flow hedges was recognized in the statement of earnings. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

Capital

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

The FRB, the FDIC and the GDBF have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. These standards define and establish minimum capital requirements in relation to assets and off-balance sheet exposure, adjusted for credit risk. The risk-based capital standards currently in effect are designed to make regulatory capital requirements more sensitive to differences in risk profiles among bank holding companies and banks and to account for off-balance sheet exposure. The regulatory capital standards are defined by the following three key measurements:

 

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

 

  b) The “Core Capital Ratio” is defined as Tier 1 capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a core capital ratio greater than or equal to 4.00%. For a bank to be considered “well capitalized”, it must maintain a core capital ratio greater than or equal to 6.00%.

 

  c) The “Total Capital Ratio” is defined as total capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a total capital ratio greater than or equal to 8.00%. For a bank to be considered “well capitalized”, it must maintain a total capital ratio greater than or equal to 10.00%.

As of June 30, 2014, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. On July 2, 2013, the FRB adopted a new regulatory capital framework as a part of the Basel III regulatory capital reforms. Management currently believes that Ameris will be in compliance with the revised capital requirements when they become applicable to the Company on January 1, 2015. The following table sets forth the regulatory capital ratios of Ameris at June 30, 2014, December 31, 2013 and June 30, 2013:

 

     June 30,
2014
    December 31,
2013
    June 30,
2013
 

Leverage Ratio (tier 1 capital to average assets)

      

Consolidated

     9.25     11.33     11.43

Ameris Bank

     9.77        11.93        11.32   

Core Capital Ratio (tier 1 capital to risk weighted assets)

      

Consolidated

     13.32        14.35        18.04   

Ameris Bank

     14.11        15.06        17.91   

Total Capital Ratio (total capital to risk weighted assets)

      

Consolidated

     14.26        15.32        19.30   

Ameris Bank

     15.04        16.03        19.16   

 

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Capital Purchase Program

On November 21, 2008, the Company, pursuant to the Capital Purchase Program established in connection with the Troubled Asset Relief Program, issued and sold to the U.S. Treasury, for an aggregate cash purchase price of $52 million, (i) 52,000 shares (the “Preferred Shares”) of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share, and (ii) a ten-year warrant (the “Warrant”) to purchase up to 679,443 shares of our common stock at an exercise price of $11.48 per share. On June 14, 2012, the Preferred Shares were sold by the Treasury through a registered public offering. On August 22, 2012, the Company repurchased the Warrant from the Treasury for $2.67 million. In December 2012, the Company repurchased 24,000 outstanding Preferred Shares, and in March 2014, the Company redeemed the remaining 28,000 outstanding Preferred Shares.

Interest Rate Sensitivity and Liquidity

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

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

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

The Company uses a simulation modeling process to measure interest rate risk and evaluate potential strategies. Interest rate scenario models are prepared using software created and licensed from an outside vendor. The Company’s simulation includes all financial assets and liabilities. Simulation results quantify interest rate risk under various interest rate scenarios. Management then develops and implements appropriate strategies. The ALCO Committee has determined that an acceptable level of interest rate risk would be for net interest income to decrease no more than 5.00% given a change in selected interest rates of 200 basis points over any 24-month period.

Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of the Company to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term investments at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks, which could provide funds on short notice, if needed. The Company has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is equal to 20% of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At June 30, 2014 and December 31, 2013, there were $100.3 million and $194.6 million, respectively, outstanding borrowings with the Company’s correspondent banks. There were no outstanding borrowings with the Company’s correspondent banks at June 30, 2013.

 

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

 

     June 30,
2014
    March 31,
2014
    December 31,
2013
    September 30,
2013
    June 30,
2013
 

Investment securities available for sale to total deposits

     15.80     15.17     16.21     12.78     12.94

Loans (net of unearned income) to total deposits

     82.72     83.22     81.94     82.14     81.84

Interest-earning assets to total assets

     87.22     87.80     87.68     87.38     86.23

Interest-bearing deposits to total deposits

     76.67     76.79     77.71     80.54     80.54

The liquidity resources of the Company are monitored continuously by the ALCO Committee and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s and the Bank’s liquidity ratios at June 30, 2014 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed only to U.S. dollar interest rate changes, and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company’s hedging activities are part of the Company’s program to manage interest rate sensitivity. At June 30, 2014, the Company had one effective LIBOR rate swap with a notional amount of $37.1 million. The LIBOR rate swap exchanges fixed rate payments of 4.15% for floating rate payments based on the three month LIBOR and matures December 2018. The Company also had forward contracts with a fair value of approximately $2.6 million at June 30, 2014 to hedge changes in the value of the mortgage inventory due to changes in market interest rates. Finally, the Company has no exposure to foreign currency exchange rate risk, commodity price risk and other market risks.

Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as “interest rate risk”. The repricing of interest-earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of the Company’s asset/liability management program, the timing of repriced assets and liabilities is referred to as “gap management”.

The Company uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve-month period is subjected to a gradual and shock 200 basis point increase or decrease in market rates on net interest income and is monitored on a quarterly basis.

Additional information required by Item 305 of Regulation S-K is set forth under Part I, Item 2 of this report.

Item 4. Controls and Procedures.

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

During the quarter ended June 30, 2014, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Nothing to report with respect to the period covered by this report.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in Item 1A. of Part 1 in our Annual Report on Form 10-K for the year ended December 31, 2013.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits required to be furnished with this report are listed on the exhibit index attached hereto.

SIGNATURE

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

 

Date: August 8, 2014   AMERIS BANCORP
 

/s/ Dennis J. Zember Jr.

 

Dennis J. Zember Jr., Executive Vice President and

Chief Financial Officer (duly authorized signatory

and principal accounting and financial officer)

 

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EXHIBIT INDEX

 

Exhibit
No.

  

Description

3.1    Articles of Incorporation of Ameris Bancorp, as amended (incorporated by reference to Exhibit 2.1 to Ameris Bancorp’s Regulation A Offering Statement on Form 1-A filed with the Commission on August 14, 1987).
3.2    Amendment to Amended Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1.1 to Ameris Bancorp’s Form 10-K filed with the Commission on March 28, 1996).
3.3    Amendment to Amended Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 4.3 to Ameris Bancorp’s Registration Statement on Form S-4 filed with the Commission on July 17, 1996).
3.4    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.5 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 25, 1998).
3.5    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 26, 1999).
3.6    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.9 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 31, 2003).
3.7    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on December 1, 2005).
3.8    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on November 21, 2008).
3.9    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on June 1, 2011).
3.10    Amended and Restated Bylaws of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on March 14, 2005).
4.1    Indenture between Ameris Bancorp (as successor to Coastal Bankshares, Inc.) and Wells Fargo Bank, National Association dated as of August 27, 2003 (incorporated by reference to Exhibit 4.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on July 1, 2014).
4.2    First Supplemental Indenture dated as of June 30, 2014 by and between Ameris Bancorp and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on July 1, 2014).
4.3    Form of Junior Subordinated Debt Security Due 2033 (incorporated by reference to Exhibit 4.3 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on July 1, 2014).
4.4    Indenture between Ameris Bancorp (as successor to Coastal Bankshares, Inc.) and U.S. Bank National Association dated as of December 14, 2005 (incorporated by reference to Exhibit 4.4 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on July 1, 2014).
4.5    First Supplemental Indenture dated as of June 30, 2014 by and among Ameris Bancorp, Coastal Bankshares, Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.5 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on July 1, 2014).
4.6    Form of Junior Subordinated Debt Security Due 2035 (incorporated by reference to Exhibit 4.6 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on July 1, 2014).
10.1    Executive Employment Agreement with James A. LaHaise dated as of June 30, 2014.t
31.1    Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer.
31.2    Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer.
32.1    Section 1350 Certification by the Company’s Chief Executive Officer.
32.2    Section 1350 Certification by the Company’s Chief Financial Officer.

 

t  Management contract or other compensatory plan or arrangement.

 

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101    The following financial statements from Ameris Bancorp’s Form 10-Q for the quarter ended June 30, 2014, formatted as interactive data files in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Earnings and Comprehensive Income; (iii) Consolidated Statements of Changes in Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.

 

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