Edgar Filing: Ameris Bancorp

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

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

Commission File Number: 001-13901

LOGO

AMERIS BANCORP

(Exact name of registrant as specified in its charter)


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

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

(Address of principal executive offices)

(229) 890-1111

(Registrant’s telephone number)

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

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

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

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

There were 23,751,794 shares of Common Stock outstanding as of November 3, 2011.

AMERIS BANCORP

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		Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements.

	Consolidated Balance Sheets at September 30, 2011, December 31, 2010 and September 30, 2010		1

	Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Month Periods Ended September 30, 2011 and 2010		2

	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2011 and 2010		3

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010		4

	Notes to Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		41

Item 4.	Controls and Procedures.		41

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.		41

Item 1A.	Risk Factors.		41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		41

Item 3.	Defaults Upon Senior Securities.		41

Item 4.	(Removed and Reserved).		41

Item 5.	Other Information.		41

Item 6.	Exhibits.		41

Signatures			42

Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)


	September 30, 2011			December 31, 2010			September 30, 2010
	(Unaudited)			(Audited)			(Unaudited)
Assets
Cash and due from banks	$	55,761		$	74,326		$	43,814
Federal funds sold and interest bearing accounts		170,349			261,262			306,867
Investment securities available for sale, at fair value		340,839			322,581			235,827
Other investments		11,089			12,440			7,326
Mortgage loans held for sale, at fair value		8,867			—			—

Loans		1,368,895			1,374,757			1,462,832
Covered loans		595,428			554,991			185,288
Less: allowance for loan losses		35,238			34,576			34,072

Loans, net		1,929,085			1,895,172			1,614,048


Other real estate owned		54,487			57,915			50,919
Covered other real estate owned		81,907			54,931			28,416

Total other real estate owned		136,394			112,846			79,335

FDIC indemnification asset		239,719			177,187			42,532
Premises and equipment, net		71,848			66,589			66,056
Intangible assets, net		3,471			4,261			3,097
Goodwill		956			956			—
Other assets		42,001			44,548			35,801

Total assets	$	3,010,379		$	2,972,168		$	2,434,703


Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing	$	354,434		$	301,971		$	235,646
Interest-bearing		2,274,458			2,233,455			1,863,356

Total deposits		2,628,892			2,535,426			2,099,002
Securities sold under agreements to repurchase		13,180			68,184			13,186
Other borrowings		21,000			43,495			—
Other liabilities		10,616			9,387			6,279
Subordinated deferrable interest debentures		42,269			42,269			42,269

Total liabilities		2,715,957			2,698,761			2,160,736


Commitments and contingencies

Stockholders’ Equity
Preferred stock, stated value $1,000; 5,000,000 shares authorized; 52,000 shares issued		50,572			50,121			49,975
Common stock, par value $1; 30,000,000 shares authorized; 25,078,968, 24,982,911 and 24,961,239 shares issued		25,079			24,983			24,961
Capital surplus		166,385			165,930			165,544
Retained earnings		54,530			37,000			35,947
Accumulated other comprehensive income		8,687			6,204			8,371
Treasury stock, at cost, 1,336,174 shares		(10,831	)		(10,831	)		(10,831	)

Total stockholders’ equity		294,422			273,407			273,967

Total liabilities and stockholders’ equity	$	3,010,379		$	2,972,168		$	2,434,703

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)

(dollars in thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Interest income
Interest and fees on loans	$	31,633		$	26,465		$	93,480		$	79,808
Interest on taxable securities		2,672			2,295			7,904			7,259
Interest on nontaxable securities		330			295			964			898
Interest on deposits in other banks and federal funds sold		153			118			500			295

Total interest income		34,788			29,173			102,848			88,260


Interest expense
Interest on deposits		6,431			6,903			20,631			21,318
Interest on other borrowings		555			270			1,461			671

Total interest expense		6,986			7,173			22,092			21,989


Net interest income		27,802			22,000			80,756			66,271
Provision for loan losses		7,552			9,739			23,710			39,117

Net interest income after provision for loan losses		20,250			12,261			57,046			27,154


Noninterest income
Service charges on deposit accounts		4,666			3,761			13,598			10,822
Mortgage banking activity		707			712			1,533			1,939
Other service charges, commissions and fees		392			180			907			626
Gain on acquisitions		26,867			—			26,867			8,208
Gain on sale of securities		—			—			238			200
Other noninterest income		1,090			357			2,746			1,179

Total noninterest income		33,722			5,010			45,889			22,974


Noninterest expense
Salaries and employee benefits		10,029			7,554			29,293			23,441
Equipment and occupancy expenses		3,203			2,171			8,685			6,256
Amortization of intangible assets		277			254			782			726
Data processing and telecommunications expenses		2,817			1,729			7,665			5,568
Advertising and marketing expenses		189			167			501			469
Other non-interest expenses		12,748			7,053			26,088			22,813

Total noninterest expense		29,263			18,928			73,014			59,273


Income (loss) before income tax expense (benefit)		24,709			(1,657	)		29,921			(9,145	)
Income tax expense (benefit)		8,249			(760	)		9,969			(3,293	)

Net income (loss)	$	16,460		$	(897	)	$	19,952		$	(5,852	)

Preferred stock dividends		817			807			2,422			2,402

Net income (loss) available to common shareholders	$	15,643		$	(1,704	)	$	17,530		$	(8,254	)


Other comprehensive income
Unrealized holding gain arising during period on investment securities available for sale, net of tax		2,803			736			4,791			1,680
Unrealized loss on cash flow hedges arising during period, net of tax		(1,526	)		(130	)		(2,154	)		(343	)
Reclassification adjustment for gains included in operations, net of tax		—			(69	)		(154	)		(206	)

Other comprehensive income		1,277			537			2,483			1,131

Comprehensive income (loss)	$	16,920		$	(1,167	)	$	20,013		$	(7,123	)


Basic earnings/(loss) per share	$	0.67		$	(0.07	)	$	0.75		$	(0.42	)
Diluted earnings/(loss) per share	$	0.66		$	(0.07	)	$	0.74		$	(0.42	)


Weighted Average Common Shares Outstanding
Basic		23,438			23,571			23,439			19,569
Diluted		23,559			23,571			23,530			19,569

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in thousands, except per share data)

(Unaudited)


	Nine Months Ended						Nine Months Ended
	September 30, 2011						September 30, 2010
	Shares			Amount			Shares			Amount
PREFERRED STOCK
Balance at beginning of period		52,000		$	50,121			52,000		$	49,552
Accretion of fair value of warrant		—			451			—			423


*Issued at end of period*		52,000		$	50,572			52,000		$	49,975

COMMON STOCK
Issued at beginning of period		24,982,911		$	24,983			15,379,131		$	15,379
Issuance of common stock		—			—			9,473,125			9,473
Issuance of restricted shares		125,075			125			113,800			114
Cancellation of restricted shares		(32,650	)		(33	)		(8,500	)		(9	)
Proceeds from exercise of stock options		3,632			4			3,683			4


*Issued at end of period*		25,078,968		$	25,079			24,961,239		$	24,961

CAPITAL SURPLUS
Balance at beginning of period				$	165,930					$	89,389
Stock-based compensation					522						389
Issuance of common stock					—						75,797
Proceeds from exercise of stock options					25						26
Issuance of restricted shares					(125	)					(66	)
Cancellation of restricted shares					33						9


*Balance at end of period*				$	166,385					$	165,544

RETAINED EARNINGS
Balance at beginning of period				$	37,000					$	44,216
Net income /(loss)					19,952						(5,852	)
Dividends on preferred shares					(1,971	)					(1,972	)
Accretion of fair value of warrant					(451	)					(423	)
Cash dividends on common shares					—						(22	)


*Balance at end of period*				$	54,530					$	35,947

ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
Unrealized gains (losses) on securities and derivatives:
Balance at beginning of period				$	6,204					$	7,240
Other comprehensive income					2,483						1,131


*Balance at end of period*				$	8,687					$	8,371

TREASURY STOCK
Balance at beginning of period				$	10,831					$	10,812
Purchase of treasury shares					—						19


*Balance at end of period*				$	10,831					$	10,831

*TOTAL STOCKHOLDERS’ EQUITY*				$	294,422					$	273,967

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)


	Nine Months Ended September 30,
	2011			2010
Cash Flows From Operating Activities:
Net income (loss)	$	19,952		$	(5,852	)
Adjustments reconciling net income (loss) to net cash provided by operating activities:
Depreciation		3,248			2,533
Net gains on sale or disposal of premises and equipment		(148	)		(274	)
Net losses or write-downs on sale of other real estate owned		9,962			5,923
Provision for loan losses		23,710			39,117
Provision for deferred taxes		7,882			4,833
Gain on acquisitions		(26,867	)		(8,208	)
Amortization of intangible assets		782			726
Net gains on securities available for sale		(238	)		(200	)
Net increase in mortgage loans held for sale		(8,867	)		—
Change in prepaid FDIC assessment		3,257			3,647
Change in other prepaids, deferrals and accruals, net		2,965			11,725

Net cash provided by operating activities		35,638			53,970


Cash Flows From Investing Activities:
Net (increase)/decrease in federal funds sold and interest bearing deposits		95,983			(71,279	)
Proceeds from maturities of securities available for sale		59,655			65,095
Purchase of securities available for sale		(116,228	)		(48,287	)
Proceeds from sales of securities available for sale		89,345			6,145
Net decrease in loans		49,071			21,554
Proceeds from sales of other real estate owned		36,885			29,284
Proceeds from sales of premises and equipment		1,115			1,714
Purchases of premises and equipment		(9,573	)		(2,392	)
Decrease in FDIC indemnification asset		20,519			3,308
Cash received (paid) in FDIC-assisted acquisitions		38,017			(35,657	)

Net cash provided by (used in) investing activities		264,789			(30,515	)


Cash Flows From Financing Activities:
Net decrease in deposits		(218,522	)		(99,909	)
Net decrease in securities sold under agreements to repurchase		(55,004	)		(42,068	)
Decrease in other borrowings		(43,495	)		(2,000	)
Dividends paid - preferred stock		(1,971	)		(1,972	)
Dividends paid - common stock		—			(22	)
Issuance of common stock		—			85,270

Net cash used in financing activities		(318,992	)		(60,701	)


Net decrease in cash and due from banks	$	(18,565	)	$	(37,246	)

Cash and due from banks at beginning of period		74,326			81,060


Cash and due from banks at end of period	$	55,761		$	43,814

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Ameris Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered in Moultrie, Georgia. Ameris conducts substantially all of its operations through its wholly-owned banking subsidiary, Ameris Bank (the “Bank”). At September 30, 2011, the Bank operated 62 branches in select markets in Georgia, Alabama, Florida and South Carolina. Our business model capitalizes on the efficiencies of a large financial services company while still providing the community with the personalized banking service expected by our customers. We manage our Bank through a balance of decentralized management responsibilities and efficient centralized operating systems, products and loan underwriting standards. Ameris’ Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within Ameris’ established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of their unique market.

The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended September 30, 2011 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, 2010.

Certain amounts reported for the periods ended December 31, 2010 and September 30, 2010 have been reclassified to conform to the presentation as of September 30, 2011. These reclassifications had no effect on previously reported net income or stockholders’ equity.

Newly Adopted Accounting Pronouncements

ASU 2011-01 - Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (“ASU 2011-01”). ASU 2011-01 temporarily delayed the effective date of the disclosures surrounding troubled debt restructurings in Update 2010-20 for public companies. The Financial Accounting Standards Board (“FASB”) deliberated on what constitutes a troubled debt restructuring and coordinated that guidance with the effective date of the new disclosures, which are effective for interim and annual periods ending after June 15, 2011. It did not have a material impact on the Company’s results of operations, financial position or disclosures.

ASU 2011-02 - A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“ASU 2011-02”). ASU 2011-02 provides additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring. ASU 2011-02 is effective for the first interim or annual period beginning on or after June 15, 2011, and is to be applied retrospectively to the beginning of the annual period of adoption. As a result of applying ASU 2011-02, an entity may identify receivables that are newly considered impaired. It did not have a material impact on the Company’s results of operations, financial position or disclosures.

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

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

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

Fair Value of Financial Instruments

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

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

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

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

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

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

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

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

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

Loans: The carrying amount of variable-rate loans that reprice frequently and have no significant change in credit risk approximates fair value. The fair value of fixed-rate loans is estimated based on discounted contractual cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The fair value of impaired loans is estimated based on discounted expected future cash flows or underlying collateral values, where applicable. A loan is determined to be impaired if the Company believes it is probable that all principal and interest amounts due according to the terms of the loan will not be collected as scheduled. The fair value of impaired loans is determined in accordance with accounting standards and generally results in a specific reserve established through a charge to the provision for loan losses. Losses on impaired loans are charged to the allowance when management believes the uncollectability of a loan is confirmed. Management has determined that the majority of impaired loans are Level 2 assets due to the extensive use of market appraisals. To the extent that market appraisals or other methods do not produce reliable determinations of fair value, these assets are deemed to be Level 3.

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

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

Intangible Assets and Goodwill: Intangible assets consist of core deposit premiums acquired in connection with business combinations and are based on the established value of acquired customer deposits. The core deposit premium is initially recognized based on a valuation performed as of the consummation date and is amortized over an estimated useful life of three to ten years. Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill and other intangible assets deemed to have an indefinite useful life are not amortized but instead are subject to an annual review for impairment.

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

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

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

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

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

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

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

Although the Company has determined that the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself or the counterparty. However, as of September 30, 2011, December 31, 2010 and September 30, 2010, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.

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


	September 30, 2011				December 31, 2010				September 30, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in Thousands)
Financial assets:
Loans, net	$	1,929,085	$	1,907,017	$	1,895,172	$	1,905,346	$	1,614,048	$	1,622,871

Financial liabilities:
Deposits		2,628,892		2,629,974		2,535,426		2,542,767		2,099,002		2,100,502
Other borrowings		21,000		20,814		43,495		43,685		—		—

The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of September 30, 2011 and 2010 and December 31, 2010 (dollars in thousands):


	Fair Value Measurements on a Recurring Basis As of September 30, 2011
	Fair Value		Level 1		Level 2		Level 3
U.S. government agencies	$	20,309	$	—	$	20,309	$	—
State, county and municipal securities		71,682		6,552		65,130		—
Corporate debt securities		11,528		—		9,528		2,000
Mortgage backed securities		237,320		6,044		231,276		—

Total recurring assets at fair value	$	340,839	$	12,596	$	326,243	$	2,000


	Fair Value Measurements on a Recurring Basis As of December 31, 2010
	Fair Value		Level 1		Level 2		Level 3
U.S. government agencies	$	35,468	$	—	$	35,468	$	—
State, county and municipal securities		57,696		—		54,951		2,745
Corporate debt securities		10,786		—		8,786		2,000
Mortgage backed securities		218,631		—		218,631		—
Derivative financial instruments		936		—		936		—

Total recurring assets at fair value	$	323,517	$	—	$	318,772	$	4,745


	Fair Value Measurements on a Recurring Basis As of September 30, 2010
	Fair Value		Level 1		Level 2		Level 3

U.S. government agencies	$	16,281	$	—	$	16,281	$	—
State, county and municipal securities		48,772		—		48,772		—
Corporate debt securities		9,853		—		7,853		2,000
Mortgage backed securities		160,921		—		160,921		—
Derivative financial instruments		1,280		—		1,280		—

Total recurring assets at fair value	$	237,107	$	—	$	235,107	$	2,000

The following table is a summary of instruments measured at fair value on a nonrecurring basis, using the valuation hierarchy as of September 30, 2011 and 2010 and December 31, 2010 (dollars in thousands):


	Fair Value Measurements on a Nonrecurring Basis As of September 30, 2011
	Fair Value		Level 1		Level 2		Level 3
Impaired loans carried at fair value	$	58,648	$	—	$	58,648	$	—
Other real estate owned		54,487		—		—		54,487
Covered loans		595,428		—		—		595,428
Covered other real estate owned		81,907		—		—		81,907

Total non-recurring assets at fair value	$	790,470	$	—	$	58,648	$	731,822


	Fair Value Measurements on a Nonrecurring Basis As of December 31, 2010
	Fair Value		Level 1		Level 2		Level 3
Impaired loans carried at fair value	$	84,573	$	—	$	84,573	$	—
Other real estate owned		57,915		—		—		57,915
Covered loans		554,991		—		—		554,991
Covered other real estate owned		54,931		—		—		54,931

Total nonrecurring assets at fair value	$	752,410	$	—	$	84,573	$	667,837


	Fair Value Measurements on a Nonrecurring Basis As of September 30, 2010
	Fair Value		Level 1		Level 2		Level 3
Impaired loans carried at fair value	$	77,947	$	—	$	77,947	$	—
Other real estate owned		50,919		—		—		50,919
Covered loans		185,288		—		—		185,288
Covered other real estate owned		28,416		—		—		28,416

Total nonrecurring assets at fair value	$	342,570	$	—	$	77,947	$	264,623

Below is the Company’s reconciliation of Level 3 assets as of September 30, 2011. Gains or losses on impaired loans are recorded in the provision for loan losses.


	Investment Securities Available for Sale			Other Real Estate Owned			Covered Loans			Covered Other Real Estate
Beginning balance January 1, 2011	$	4,745		$	57,915		$	554,991		$	54,931
Total gains/(losses) included in net income		—			(10,037	)		—			75
Purchases, sales, issuances, and settlements, net		—			(23,423	)		63,286			4,052
Transfers in or out of Level 3		(2,745	)		30,032			(22,849	)		22,849

Ending balance September 30, 2011	$	2,000		$	54,487		$	595,428		$	81,907

NOTE 2 – INVESTMENT SECURITIES

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

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 September 30, 2011, 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 September 30, 2011, these investments are not considered impaired on an other-than temporary basis.

The amortized cost and estimated fair value of investment securities available for sale at September 30, 2011, December 31, 2010 and September 30, 2010 are presented below:


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

September 30, 2011:
U. S. government agencies	$	20,007	$	302	$	—		$	20,309
State, county and municipal securities		68,486		3,196		—			71,682
Corporate debt securities		11,638		247		(357	)		11,528
Mortgage-backed securities		230,786		6,838		(304	)		237,320

Total securities	$	330,917	$	10,583	$	(661	)	$	340,839


December 31, 2010:
U. S. government agencies	$	35,128	$	448	$	(108	)	$	35,468
State, county and municipal securities		57,385		928		(617	)		57,696
Corporate debt securities		13,540		123		(2,877	)		10,786
Mortgage-backed securities		213,737		6,732		(1,838	)		218,631

Total securities	$	319,790	$	8,231	$	(5,440	)	$	322,581


September 30, 2010:
U. S. government agencies	$	15,358	$	923	$	—		$	16,281
State, county and municipal securities		46,600		2,174		(2	)		48,772
Corporate debt securities		12,522		170		(2,839	)		9,853
Mortgage-backed securities		153,545		7,379		(3	)		160,921

Total securities	$	228,025	$	10,646	$	(2,844	)	$	235,827

The amortized cost and fair value of available-for-sale securities at September 30, 2011 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	$	13,902	$	13,969
Due from one year to five years		17,772		18,406
Due from five to ten years		40,917		43,372
Due after ten years		27,540		27,772
Mortgage-backed securities		230,786		237,320

	$	330,917	$	340,839

Securities with a carrying value of approximately $177.6 million serve as collateral to secure public deposits and other purposes required or permitted by law at September 30, 2011.

The following table details the gross unrealized losses and fair value of securities aggregated by category and duration of continuous unrealized loss position at September 30, 2011, December 31, 2010 and September 30, 2010.


	Less Than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
September 30, 2011:
U. S. government agencies	$	—	$	—		$	—	$	—		$	—	$	—
State, county and municipal securities		—		—			—		—			—		—
Corporate debt securities		100		—			6,732		(357	)		6,832		(357	)
Mortgage-backed securities		33,741		(304	)		—		—			33,741		(304	)

Total temporarily impaired securities	$	33,841	$	(304	)	$	6,732	$	(357	)	$	40,573	$	(661	)


December 31, 2010:
U. S. government agencies	$	25,017	$	(108	)	$	—	$	—		$	25,017	$	(108	)
State, county and municipal securities		17,563		(617	)		—		—			17,563		(617	)
Corporate debt securities		1,048		(20	)		5,078		(2,857	)		6,126		(2,877	)
Mortgage-backed securities		64,549		(1,838	)		15		—			64,564		(1,838	)

Total temporarily impaired securities	$	108,177	$	(2,583	)	$	5,093	$	(2,857	)	$	113,270	$	(5,440	)


September 30, 2010:
U. S. government agencies	$	—	$	—		$	—	$	—		$	—	$	—
State, county and municipal securities		1,205		(2	)		—		—			1,205		(2	)
Corporate debt securities		99		(1	)		5,153		(2,838	)		5,252		(2,839	)
Mortgage-backed securities		1,615		(3	)		15		—			1,630		(3	)

Total temporarily impaired securities	$	2,919	$	(6	)	$	5,168	$	(2,838	)	$	8,087	$	(2,844	)

NOTE 3 – LOANS

The Company engages in a full complement of lending activities, including real estate-related loans, agriculture-related loans, commercial and financial loans and consumer installment loans within select markets in Georgia, Alabama, Florida and South Carolina. Ameris concentrates the majority of its lending activities in real estate loans. While risk of loss in the Company’s portfolio is primarily tied to the credit quality of the various borrowers, risk of loss may increase due to factors beyond Ameris’ control, such as local, regional and/or national economic downturns. General conditions in the real estate market may also impact the relative risk in the real estate portfolio.

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

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

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

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


(Dollars in Thousands)	September 30, 2011		December 31, 2010		September 30, 2010
Commercial, financial and agricultural	$	159,020	$	142,312	$	152,812
Real estate – construction and development		145,770		162,594		178,532
Real estate – commercial and farmland		677,048		683,974		721,368
Real estate – residential		331,236		344,830		348,737
Consumer installment		38,163		34,293		54,681
Other		17,658		6,754		6,702

	$	1,368,895	$	1,374,757	$	1,462,832

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 $595.4 million, $555.0 million and $185.3 million at September 30, 2011, December 31, 2010 and September 30, 2010, respectively, are not included in the above schedule.

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


(Dollars in Thousands)	September 30, 2011		December 31, 2010		September 30, 2010
Commercial, financial and agricultural	$	49,859	$	47,309	$	16,506
Real estate – construction and development		82,933		89,781		43,047
Real estate – commercial and farmland		323,760		257,428		90,158
Real estate – residential		135,318		149,226		27,736
Consumer installment		3,558		11,247		7,841

	$	595,428	$	554,991	$	185,288

Nonaccrual and Past Due Loans

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

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


(Dollars in Thousands)	September 30, 2011		December 31, 2010		September 30, 2010
Commercial, financial and agricultural	$	4,570	$	8,648	$	7,752
Real estate – construction and development		15,789		7,887		30,359
Real estate – commercial and farmland		24,450		55,170		37,086
Real estate – residential		13,529		6,376		13,752
Consumer installment		729		1,208		733

	$	59,067	$	79,289	$	89,862

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


(Dollars in Thousands)	September 30, 2011		December 31, 2010		September 30, 2010
Commercial, financial and agricultural	$	12,136	$	5,756	$	795
Real estate – construction and development		32,878		25,810		8,936
Real estate – commercial and farmland		63,940		29,519		14,706
Real estate – residential		34,846		25,946		7,852
Consumer installment		451		1,122		682

	$	144,251	$	88,153	$	32,971

The following table presents an analysis of non-covered past due loans as of September 30, 2011 and December 31, 2010:


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of September 30, 2011:
Commercial, financial & agricultural	$	657	$	884	$	4,544	$	6,085	$	152,935	$	159,020	$	—
Real estate – construction & development		1,228		1,759		15,050		18,037		127,733		145,770		—
Real estate – commercial & farmland		6,755		2,594		22,777		32,126		644,922		677,048		—
Real estate – residential		5,581		2,476		12,706		20,763		310,473		331,236		—
Consumer installment loans		475		260		661		1,396		36,767		38,163		20
Other		—		—		—		—		17,658		17,658		—

Total	$	14,696	$	7,973	$	55,738	$	78,407	$	1,290,488	$	1,368,895	$	20


	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, 2010:
Commercial, financial & agricultural	$	898	$	120	$	6,746	$	7,764	$	134,548	$	142,312	$	—
Real estate – construction & development		2,121		2,039		19,458		23,618		138,976		162,594		—
Real estate – commercial & farmland		1,740		3,725		25,914		31,379		652,595		683,974		—
Real estate – residential		3,384		3,066		14,393		20,843		323,987		344,830		—
Consumer installment loans		493		142		475		1,110		33,183		34,293		3
Other		—		—		—		—		6,754		6,754		—

Total	$	8,636	$	9,092	$	66,986	$	84,714	$	1,290,043	$	1,374,757	$	3

There was no material amount of non-covered loans past due ninety days or more and still accruing interest at September 30, 2010.

The following table presents an analysis of covered past due loans as of September 30, 2011 and December 31, 2010:


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of September 30, 2011:
Commercial, financial & agricultural	$	290	$	411	$	11,406	$	12,107	$	37,752	$	49,859	$	5
Real estate – construction & development		1,175		2,610		30,220		34,005		48,928		82,933		347
Real estate – commercial & farmland		16,316		7,790		54,009		78,115		245,645		323,760		339
Real estate – residential		8,180		2,717		32,570		43,467		91,851		135,318		2,039
Consumer installment loans		72		73		422		567		2,991		3,558		—
Other		—		—		—		—		—		—		—

Total	$	26,033	$	13,601	$	128,627	$	168,261	$	427,167	$	595,428	$	2,730


	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, 2010:
Commercial, financial & agricultural	$	2,531	$	3,954	$	4,914	$	11,399	$	35,910	$	47,309	$	3,355
Real estate – construction & development		1,464		5,254		11,866		18,584		71,197		89,781		5,038
Real estate – commercial & farmland		4,834		19,628		20,979		45,441		211,987		257,428		5,712
Real estate – residential		5,186		4,135		10,277		19,598		129,628		149,226		2,145
Consumer installment loans		606		158		1,092		1,856		9,391		11,247		133
Other		—		—		—		—		—		—		—

Total	$	14,621	$	33,129	$	49,128	$	96,878	$	458,113	$	554,991	$	16,383

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 non-accrual loans greater than $200,000 and rated substandard or worse and all troubled debt restructurings greater than $100,000. If a loan is deemed impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.

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


	As of and For the Period Ended
	September 30, 2011		December 31, 2010		September 30, 2010
	(Dollars in Thousands)
Nonaccrual loans	$	59,067	$	79,289	$	89,862
Troubled debt restructurings not included above		16,591		21,972		5,594

Total impaired loans	$	75,658	$	101,261	$	95,456


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

Impaired loans requiring a related allowance	$	75,658	$	101,261	$	95,456

Allowance related to impaired loans	$	17,010	$	16,688	$	17,509

Average investment in impaired loans	$	88,207	$	103,776	$	104,404

Interest income recognized on impaired loans	$	847	$	545	$	434

Foregone interest income on impaired loans	$	202	$	3,828	$	2,099

The following table presents an analysis of information pertaining to non-covered impaired loans as of September 30, 2011 and December 31, 2010:


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(Dollars in Thousands)
As of September 30, 2011:
Commercial, financial & agricultural	$	8,895	$	—	$	4,571	$	4,571	$	1,277	$	5,848
Real estate – construction & development		26,450		—		17,486		17,486		6,164		19,417
Real estate – commercial & farmland		35,835		—		31,455		31,455		4,470		41,488
Real estate – residential		23,871		—		21,436		21,436		4,933		20,837
Consumer installment loans		875		—		710		710		166		617

Total	$	95,926	$	—	$	75,658	$	75,658	$	17,010	$	88,207


	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, 2010:
Commercial, financial & agricultural	$	9,983	$	—	$	6,985	$	6,985	$	1,649	$	6,845
Real estate – construction & development		38,060		—		23,485		23,485		4,023		35,315
Real estate – commercial & farmland		57,224		—		50,626		50,626		6,795		40,475
Real estate – residential		22,819		—		19,632		19,632		4,085		20,401
Consumer installment loans		738		—		533		533		136		740

Total	$	128,824	$	—	$	101,261	$	101,261	$	16,688	$	103,776

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


	As of and For the Period Ended
	September 30, 2011		December 31, 2010		September 30, 2010
	(Dollars in Thousands)
Nonaccrual loans	$	144,251	$	88,153	$	32,971
Troubled debt restructurings not included above		10,768		169		15

Total impaired loans	$	155,019	$	88,322	$	32,986


Impaired loans not requiring a related allowance	$	155,019	$	88,322	$	32,986

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

Allowance related to impaired loans	$	—	$	—	$	—

Average investment in impaired loans	$	128,717	$	44,184	$	29,471

Interest income recognized on impaired loans	$	462	$	6	$	—

Foregone interest income on impaired loans	$	1,515	$	1,251	$	1,212

The following table presents an analysis of information pertaining to covered impaired loans as of September 30, 2011 and December 31, 2010:


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(Dollars in Thousands)
As of September 30, 2011:
Commercial, financial & agricultural	$	19,904	$	12,194	$	—	$	12,194	$	—	$	9,756
Real estate – construction & development		111,148		33,380		—		33,380		—		29,672
Real estate – commercial & farmland		135,514		65,592		—		65,592		—		49,573
Real estate – residential		72,962		43,402		—		43,402		—		38,775
Consumer installment loans		581		451		—		451		—		941

Total	$	340,109	$	155,019	$	—	$	155,019	$	—	$	128,717


	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, 2010:
Commercial, financial & agricultural	$	10,974	$	5,756	$	—	$	5,756	$	—	$	2,025
Real estate – construction & development		64,904		25,810		—		25,810		—		12,071
Real estate – commercial & farmland		49,381		29,519		—		29,519		—		17,717
Real estate – residential		48,148		26,115		—		26,115		—		11,579
Consumer installment loans		1,268		1,122		—		1,122		—		792

Total	$	174,675	$	88,322	$	—	$	88,322	$	—	$	44,184

Credit Quality Indicators

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

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

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

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

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

Grade 28 – Performing, Under-Collateralized Credit – This grade is assigned to loans that are currently performing and supported by adequate financial information that reflects repayment capacity but exhibits a loan-to-value ratio greater than 110%, based on a documented collateral valuation.

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

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

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

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

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


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	16,047	$	211	$	905	$	109	$	6,189	$	—	$	23,461
15		12,135		4,814		146,029		29,930		973		—		193,881
20		67,085		35,764		277,651		130,731		21,859		17,658		550,748
25		55,307		69,618		169,887		122,939		7,391		—		425,142
28		1,192		8,043		9,290		11,985		28		—		30,538
30		1,738		4,291		35,550		10,583		598		—		52,760
40		5,376		22,753		37,736		24,959		1,033		—		91,857
50		140		276		—		—		92		—		508
60		—		—		—		—		—		—		—

Total	$	159,020	$	145,770	$	677,048	$	331,236	$	38,163	$	17,658	$	1,368,895

The following table presents the non-covered loan portfolio by risk grade as of December 31, 2010:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	17,739	$	211	$	1,109	$	110	$	5,507	$	—	$	24,676
15		11,191		3,006		145,376		40,783		858		—		201,214
20		48,738		39,407		274,817		118,179		18,566		6,754		506,461
25		53,957		73,589		168,273		137,416		8,261		—		441,496
28		2,246		7,696		9,159		6,197		31		—		25,329
30		998		6,437		29,029		17,069		273		—		53,806
40		6,633		32,009		56,090		25,076		791		—		120,599
50		810		239		120		—		6		—		1,175
60		—		—		1		—		—		—		1

Total	$	142,312	$	162,594	$	683,974	$	344,830	$	34,293	$	6,754	$	1,374,757

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


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	587	$	—	$	—	$	1,376	$	578	$	—	$	2,541
15		31		53		1,799		633		16		—		2,532
20		4,602		5,615		31,938		20,911		557		—		63,623
25		22,142		22,664		141,921		51,260		1,386		—		239,373
28		—		54		1,478		690		—		—		2,222
30		5,810		12,831		41,679		8,705		198		—		69,223
40		16,683		40,571		104,008		51,743		823		—		213,828
50		4		1,145		937		—		—		—		2,086
60		—		—		—		—		—		—		—

Total	$	49,859	$	82,933	$	323,760	$	135,318	$	3,558	$	—	$	595,428

The following table presents the covered loan portfolio by risk grade as of December 31, 2010:


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	$	1,297	$	—	$	—	$	—	$	1,241	$	—	$	2,538
15		124		—		—		—		35		—		159
20		957		4,245		15,961		5,861		1,865		—		28,889
25		30,333		28,918		130,540		78,665		6,231		—		274,687
28		—		—		—		—		—		—		—
30		3,099		7,690		38,275		22,385		396		—		71,845
40		11,495		48,928		72,652		42,233		1,479		—		176,787
50		4		—		—		82		—		—		86
60		—		—		—		—		—		—		—

Total	$	47,309	$	89,781	$	257,428	$	149,226	$	11,247	$	—	$	554,991

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 that it would not otherwise consider. Concessions may include interest rate reductions to below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. The Company has exhibited the greatest success for rehabilitation of the loan by a reduction in the rate alone (maintaining the amortization of the debt) or a combination of a rate reduction and the forbearance of previously past due interest or principal. This has most typically been evidenced in certain commercial real estate loans whereby a disruption in the borrower’s cash flow resulted in an extended past due status, of which the borrower was unable to catch up completely as the cash flow of the property ultimately stabilized at a level lower than its original level. A reduction in rate, coupled with a forbearance of unpaid principal and/or interest, allowed the net cash flows to service the debt under the modified terms.

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

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

In the normal course of business, the Company renews loans with a modification of the interest rate or terms that are not deemed as troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first nine months of 2011 totaling $27.0 million and loans in 2010 totaling $23.8 million under such parameters. In addition, the Company offers consumer loan customers an annual skip-a-pay program that is based on certain qualifying parameters and not based on financial difficulties. The Company does not treat these as troubled debt restructurings.

The following table presents the amount of troubled debt restructurings by loan class, classified separately as accrual and non-accrual at September 30, 2011 and December 31, 2010.


As of September 30, 2011	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Real estate – construction & development		5		1,697		4		1,426
Real estate – commercial & farmland		10		7,005		3		5,392
Real estate - residential		23		7,889		1		227

Total		38	$	16,591		8	$	7,045


As of December 31, 2010	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Real estate – construction & development		2		786		2		2,290
Real estate – commercial & farmland		15		19,262		3		2,864
Real estate - residential		9		1,924		1		316

Total		26	$	21,972		6	$	5,470

The following table presents the amount of troubled debt restructurings by types of concessions made, classified separately as accrual and non-accrual at September 30, 2011 and December 31, 2010.


As of September 30, 2011	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance (in thousands)		#		Balance (in thousands)
Forbearance of Interest		1	$	316		—	$	—
Forgiveness of Principal		2		889		1		136
Payment Modification Only		2		399		—		—
Rate Reduction Only		11		6,027		2		690
Rate Reduction, Forbearance of Interest		9		7,360		—		—
Rate Reduction, Forbearance of Principal		13		1,600		—		—
Rate Reduction, Payment Modification		—		—		5		6,219

Total		38	$	16,591		8	$	7,045


As of December 31, 2010	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance (in thousands)		#		Balance (in thousands)
Forbearance of Interest		—	$	—		2	$	722
Forgiveness of Principal		4		1,145		—		—
Payment Modification Only		3		232		—		—
Rate Reduction Only		5		5,985		—		—
Rate Reduction, Forbearance of Interest		7		6,207		1		1,615
Rate Reduction, Forbearance of Principal		1		596		—		—
Rate Reduction, Payment Modification		6		7,807		3		3,133

Total		26	$	21,972		6	$	5,470

The following table presents the amount of troubled debt restructurings by collateral types, classified separately as accrual and non-accrual at September 30, 2011 and December 31, 2010.


As of September 30, 2011	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance (in thousands)		#		Balance (in thousands)
Apartments		—	$	—		—	$	—
Raw Land		5		1,697		4		1,426
Hotel & Motel		1		518		1		2,072
Office		3		1,006		—		—
Retail, including Strip Centers		6		5,481		2		3,320
1-4 Family Residential		23		7,889		1		227

Total		38	$	16,591		8	$	7,045


As of December 31, 2010	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance (in thousands)		#		Balance (in thousands)
Apartments		3	$	3,770		—	$	—
Raw Land		6		2,429		2		2,290
Hotel & Motel		2		4,199		1		2,072
Office		—		—		2		792
Retail, including Strip Centers		6		9,650		—		—
1-4 Family Residential		9		1,924		1		316

Total		26	$	21,972		6	$	5,470

As of September 30, 2011 and December 31, 2010, the Company had a balance of $23.6 million and $27.4 million, respectively, in troubled debt restructurings. The Company has recorded $1.3 million and $2.6 million in previous charge-offs on such loans at September 30, 2011 and December 31, 2010, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $3.5 million and $3.3 million at September 30, 2011 and December 31, 2010, respectively.

Allowance for Loan Losses

The allowance for loan losses represents a reserve for inherent losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on non-accruing, past due and other loans that management believes might be potentially impaired or warrant additional attention. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio. In addition, based on internal reviews and external reviews performed by independent auditors and regulatory authorities, the Company further segregates the loan portfolio by loan grades based on an assessment of risk for a particular loan or group of loans. Certain reviewed loans are assigned specific allowances when a review of relevant data determines that a general allocation is not sufficient. 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 Senior Credit Officer. Procedures provide for the assignment of a risk rating for every loan included in the total loan portfolio, with the exception of credit card receivables and overdraft protection loans which are treated as pools for risk rating purposes. The risk rating schedule provides nine ratings of which five ratings are classified as pass ratings and four ratings are classified as criticized ratings. Each risk rating is assigned a percentage factor to be applied to the loan balance to determine the adequate amount of reserve. Many of the larger loans require an annual review by an independent loan officer or an independent third party loan review firm. As a result of these loan reviews, certain loans may be assigned specific reserve allocations. Other loans that surface as problem loans may also be assigned specific reserves. Past due loans are assigned risk ratings based on the number of days past due. The calculation of the allowance for loan losses, including underlying data and assumptions, is reviewed regularly by the Company’s Chief Financial Officer and the Director of Internal Audit.

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

Activity in the allowance for loan losses for the nine months ended September 30, 2011, for the year ended December 31, 2010 and for the nine months ended September 30, 2010 is as follows:


(Dollars in Thousands)	September 30, 2011			December 31, 2010			September 30, 2010
Balance, January 1	$	34,576		$	35,762		$	35,762
Provision for loan losses charged to expense		22,098			48,839			39,117
Loans charged off		(22,714	)		(52,623	)		(43,130	)
Recoveries of loans previously charged off		1,278			2,598			2,323

Ending balance	$	35,238		$	34,576		$	34,072

During the nine months ended September 30, 2011, the year ended December 31, 2010, and the nine months ended September 30, 2010, the Company recorded provision for loan loss expense of $1.6 million, $1.7 million, and $1.0 million respectively, to account for losses where the initial estimate of cash flows was found to be excessive on loans acquired in FDIC-assisted transactions. These amounts are excluded from the rollforwards above and below but are reflected in the Company’s Consolidated Statements of Operations.

The following table details activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2011 and the year ended December 31, 2010. 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, 2011	$	2,779		$	7,705		$	14,971		$	8,664		$	457		$	34,576
Provision for loan losses		3,586			7,615			6,447			3,931			519			22,098
Loans charged off		(3,855	)		(6,859	)		(7,851	)		(3,641	)		(508	)		(22,714	)
Recoveries of loans previously charged off		153			873			43			107			102			1,278

Balance, September 30, 2011	$	2,663		$	9,334		$	13,610		$	9,061		$	570		$	35,238


Period-end amount allocated to:
Loans individually evaluated for impairment	$	903		$	5,209		$	4,580		$	3,332		$	1		$	14,025
Loans collectively evaluated for impairment		1,760			4,125			9,030			5,729

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