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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2012

OR

 

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

Commission File Number: 001-13901

 

 

 

AMERIS BANCORP

(Exact name of registrant as specified in its charter)

 

 

 

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

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

(Address of principal executive offices)

(229) 890-1111

(Registrant’s telephone number)

 

 

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

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

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

 

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

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

There were 23,819,144 shares of Common Stock outstanding as of October 31, 2012.

 

 

 

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AMERIS BANCORP

TABLE OF CONTENTS

 

				Page
PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements.
		Consolidated Balance Sheets at September 30, 2012, December 31, 2011 and September 30, 2011			1
		Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Month Periods Ended September 30, 2012 and 2011			2
		Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2012 and 2011			3
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011			4
		Notes to Consolidated Financial Statements			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.			33
Item 3.		Quantitative and Qualitative Disclosures About Market Risk.			45
Item 4.		Controls and Procedures.			45
PART II – OTHER INFORMATION
Item 1.		Legal Proceedings.			46
Item 1A.		Risk Factors.			46
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.			46
Item 3.		Defaults Upon Senior Securities.			46
Item 4.		Mine Safety Disclosures.			46
Item 5.		Other Information.			46
Item 6.		Exhibits.			47
Signatures					47

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Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

 

		September 30, 2012				December 31, 2011				September 30, 2011
		(Unaudited)				(Audited)				(Unaudited)
Assets
Cash and due from banks		$	57,289			$	65,528			$	55,761
Federal funds sold and interest bearing accounts			66,872				229,042				170,349
Investment securities available for sale, at fair value			361,051				339,967				340,839
Other investments			7,003				9,878				11,089
Mortgage loans held for sale			29,021				11,563				8,867
Loans			1,439,862				1,332,086				1,368,895
Covered loans			546,234				571,489				595,428
Less: allowance for loan losses			25,901				35,156				35,238
Loans, net			1,960,195				1,868,419				1,929,085
Foreclosed assets			37,325				46,680				50,866
Covered foreclosed assets			88,895				78,617				81,907
Total foreclosed assets			126,220				125,297				132,773
FDIC indemnification asset			198,440				242,394				239,719
Premises and equipment, net			75,609				73,124				71,848
Cash value of bank owned life insurance			50,087				—				—
Intangible assets, net			3,404				3,250				3,471
Goodwill			956				956				956
Other assets			13,236				24,889				45,622
Total assets		$	2,949,383			$	2,994,307			$	3,010,379
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing		$	464,503			$	395,347			$	354,434
Interest-bearing			2,115,614				2,196,219				2,274,458
Total deposits			2,580,117				2,591,566				2,628,892
Securities sold under agreements to repurchase			17,404				37,665				13,180
Other borrowings			—				20,000				21,000
Other liabilities			10,387				9,037				10,616
Subordinated deferrable interest debentures			42,269				42,269				42,269
Total liabilities			2,650,177				2,700,537				2,715,957
Commitments and contingencies
Stockholders’ Equity
Preferred stock, stated value $1,000; 5,000,000 shares authorized; 52,000 shares issued			51,207				50,727				50,572
Common stock, par value $1; 100,000,000 shares authorized; 25,155,318, 25,087,468 and 25,078,968 issued			25,155				25,087				25,079
Capital surplus			164,182				166,639				166,385
Retained earnings			62,156				54,852				54,530
Accumulated other comprehensive income			7,337				7,296				8,687
Treasury stock, at cost, 1,336,174 shares			(10,831	)			(10,831	)			(10,831	)
Total stockholders’ equity			299,206				293,770				294,422
Total liabilities and stockholders’ equity		$	2,949,383			$	2,994,307			$	3,010,379

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Dollars in Thousands, Except Per Share Data)

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
Interest income
Interest and fees on loans		$	29,165			$	31,633			$	88,981			$	93,480
Interest on taxable securities			2,017				2,672				6,513				7,904
Interest on nontaxable securities			365				330				1,104				964
Interest on deposits in other banks and federal funds sold			104				153				342				500
Total interest income			31,651				34,788				96,940				102,848
Interest expense
Interest on deposits			3,005				6,431				10,724				20,631
Interest on other borrowings			408				555				1,370				1,461
Total interest expense			3,413				6,986				12,094				22,092
Net interest income			28,238				27,802				84,846				80,756
Provision for loan losses			6,540				7,552				26,647				23,710
Net interest income after provision for loan losses			21,698				20,250				58,199				57,046
Noninterest income
Service charges on deposit accounts			5,121				4,666				14,277				13,598
Mortgage banking activity			3,740				707				8,221				1,533
Other service charges, commissions and fees			331				392				1,044				907
Gain on acquisitions			—				26,867				20,037				26,867
Gain on sale of securities			—				—				—				238
Other noninterest income			639				1,090				2,391				2,746
Total noninterest income			9,831				33,722				45,970				45,889
Noninterest expense
Salaries and employee benefits			13,766				10,029				37,337				29,293
Equipment and occupancy expenses			3,340				3,203				9,555				8,685
Amortization of intangible assets			364				277				996				782
Data processing and telecommunications expenses			2,599				2,817				7,429				7,665
Advertising and marketing expenses			421				189				1,134				501
Other non-interest expenses			8,320				12,748				33,228				26,088
Total noninterest expense			28,810				29,263				89,679				73,014
Income before income tax expense			2,719				24,709				14,490				29,921
Applicable income tax expense			816				8,249				4,727				9,969
Net income		$	1,903			$	16,460			$	9,763			$	19,952
Preferred stock dividends			827				817				2,459				2,422
Net income available to common shareholders		$	1,076			$	15,643			$	7,304			$	17,530
Other comprehensive income
Unrealized holding gain (loss) arising during period on investment securities available for sale, net of tax			(228	)			2,803				1,017				4,791
Reclassification adjustment for gains included in earnings, net of tax			—				—				—				(154	)
Unrealized loss on cash flow hedges arising during period, net of tax			(240	)			(1,526	)			(976	)			(2,154	)
Other comprehensive income			(468	)			1,277				41				2,483
		$	608			$	16,920			$	7,345			$	20,013
Basic earnings per share		$	0.05			$	0.67			$	0.31			$	0.75
Diluted earnings per share		$	0.04			$	0.66			$	0.30			$	0.74
Weighted Average Common Shares Outstanding
Basic			23,819				23,438				23,800				23,439
Diluted			23,973				23,559				23,954				23,530

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in Thousands, Except Per Share Data)

(Unaudited)

 

		Nine Months Ended								Nine Months Ended
		September 30, 2012								September 30, 2011
		Shares				Amount				Shares				Amount
PREFERRED STOCK
Balance at beginning of period			52,000			$	50,727				52,000			$	50,121
Accretion of fair value of warrant			—				480				—				451
Issued at end of period			52,000			$	51,207				52,000			$	50,572
COMMON STOCK
Issued at beginning of period			25,087,468			$	25,087				24,982,911			$	24,983
Issuance of restricted shares			67,450				67				125,075				125
Cancellation of restricted shares			—				—				(32,650	)			(33	)
Proceeds from exercise of stock options			400				1				3,632				4
Issued at end of period			25,155,318			$	25,155				25,078,968			$	25,079
CAPITAL SURPLUS
Balance at beginning of period						$	166,639							$	165,930
Repurchase of warrants							(2,670	)							—
Stock-based compensation							278								522
Proceeds from exercise of stock options							2								25
Issuance of restricted shares							(67	)							(125	)
Cancellation of restricted shares							—								33
Balance at end of period						$	164,182							$	166,385
RETAINED EARNINGS
Balance at beginning of period						$	54,852							$	37,000
Net income							9,763								19,952
Dividends on preferred shares							(1,979	)							(1,971	)
Accretion of fair value of warrant							(480	)							(451	)
Balance at end of period						$	62,156							$	54,530
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains on securities and derivatives:
Balance at beginning of period						$	7,296							$	6,204
Other comprehensive income							41								2,483
Balance at end of period						$	7,337							$	8,687
TREASURY STOCK
Balance at beginning of period						$	10,831							$	10,831
Purchase of treasury shares							—								—
Balance at end of period						$	10,831							$	10,831
TOTAL STOCKHOLDERS’ EQUITY						$	299,206							$	294,422

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

 

		Nine Months Ended September 30,
		2012				2011
Cash Flows From Operating Activities:
Net income		$	9,763			$	19,952
Adjustments reconciling net income to net cash provided by operating activities:
Depreciation			3,585				3,248
Net (gains) losses on sale or disposal of premises and equipment			163				(148	)
Net losses or write-downs on sale of other real estate owned			9,048				9,962
Provision for loan losses			26,647				23,710
Gain on acquisitions			(20,037	)			(26,867	)
Amortization of intangible assets			996				782
Net change in mortgage loans held for sale			(17,458	)			(8,867	)
Net gains on securities available for sale			—				(238	)
Change in other prepaids, deferrals and accruals, net			16,236				14,104
Net cash provided by operating activities			28,943				35,638
Cash Flows From Investing Activities, net of effect of business combinations:
Net decrease in federal funds sold and interest bearing deposits			162,170				95,983
Proceeds from maturities of securities available for sale			82,623				59,655
Purchase of securities available for sale			(89,787	)			(116,228	)
Proceeds from sales of securities available for sale			27,563				89,345
Purchase bank owned life insurance			(50,000	)			—
Net (increase) decrease in loans			(53,660	)			49,071
Proceeds from sales of other real estate owned			57,443				36,885
Proceeds from sales of premises and equipment			409				1,115
Purchases of premises and equipment			(6,642	)			(9,573	)
Decrease in FDIC indemnification asset			96,608				20,519
Net cash proceeds received from FDIC-assisted acquisitions			220,516				38,017
Net cash provided by investing activities			447,243				264,789
Cash Flows From Financing Activities, net of effect of business combinations:
Net decrease in deposits			(429,185	)			(218,522	)
Net decrease in securities sold under agreements to repurchase			(20,261	)			(55,004	)
Decrease in other borrowings			(30,334	)			(43,495	)
Dividends paid—preferred stock			(1,979	)			(1,971	)
Repurchase of warrants			(2,670	)			—
Proceeds from exercise of stock options			4				—
Net cash used in financing activities			(484,425	)			(318,992	)
Net decrease in cash and due from banks		$	(8,239	)		$	(18,565	)
Cash and due from banks at beginning of period			65,528				74,326
Cash and due from banks at end of period		$	57,289			$	55,761
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest		$	13,699			$	23,456
Income taxes		$	52			$	2,198

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Ameris Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered in Moultrie, Georgia. Ameris conducts substantially all of its operations through its wholly-owned banking subsidiary, Ameris Bank (the “Bank”). At September 30, 2012, the Bank operated 66 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 his or her 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, 2012 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto and the report of our registered independent public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Newly Adopted Accounting Pronouncements

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

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

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

Fair Value of Financial Instruments

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

 

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The Company has elected to record mortgage loans held for sale at fair value in order to eliminate the complexities and inherent difficulties of achieving hedge accounting and to better align reported results with the underlying economic changes in value of the loans and related hedge instruments. This election impacts the timing and recognition of origination fees and costs, as well as servicing value, which are now recognized in earnings at the time of origination. Interest income on mortgage loans held for sale is recorded on an accrual basis in the consolidated statement of income under the heading “Interest income – Interest and fees on loans”. The servicing value is included in the fair value of the Interest Rate Lock Commitments (“IRLCs”) with borrowers. The mark-to-market adjustments related to loans held for sale and the associated economic hedges are captured in mortgage banking activities.

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

Although the Company has determined that the majority of the inputs used to value its 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 September 30, 2012, December 31, 2011 and September 30, 2011, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.

 

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

 

		Carrying Amount				Fair Value Measurements at September 30, 2012  Using:
						Level 1				Level 2				Level 3				Total
		(Dollars in Thousands)
Financial assets:
Loans, net		$	1,960,195			$	—			$	1,989,786			$	—			$	1,989,786
Financial liabilities:
Deposits			2,580,117				—				2,581,465				—				2,581,465
Other borrowings			—				—				—				—				—

 

		December 31, 2011								September 30, 2011
		Carrying Amount				Fair Value				Carrying Amount				Fair Value
		(Dollars in Thousands)
Financial assets:
Loans, net		$	1,868,419			$	1,877,320			$	1,929,085			$	1,907,017
Financial liabilities:
Deposits			2,591,566				2,593,113				2,628,892				2,629,974
Other borrowings			20,000				20,936				21,000				20,814

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, 2012 and 2011 and December 31, 2011 (dollars in thousands):

 

		Fair Value Measurements on a Recurring Basis As of September 30, 2012
		Fair Value				Level 1				Level 2				Level 3
U.S. government agencies		$	8,895			$	—			$	8,895			$	—
State, county and municipal securities			111,742				6,932				104,810				—
Corporate debt securities			11,495				—				9,495				2,000
Mortgage backed securities			228,919				1,965				226,954				—
Mortgage loans held for sale			29,021				—				29,021				—
Total recurring assets at fair value		$	390,072			$	8,897			$	379,175			$	2,000
Derivative financial instruments		$	3,233			$	—			$	3,233				—
Total recurring liabilities at fair value		$	3,233			$	—			$	3,233			$	—
		Fair Value Measurements on a Recurring Basis As of December 31, 2011
		Fair Value				Level 1				Level 2				Level 3
U.S. government agencies		$	14,937			$	—			$	14,937			$	—
State, county and municipal securities			79,133				2,966				76,167				—
Corporate debt securities			11,401				—				9,401				2,000
Mortgage backed securities			234,496				3,302				231,194				—
Derivative financial instruments			(2,049	)			—				(2,049	)			—
Total recurring assets at fair value		$	337,918			$	6,268			$	329,650			$	2,000
		Fair Value Measurements on a Recurring Basis As of 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

 

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

 

		Fair Value Measurements on a Nonrecurring Basis As of September 30, 2012
		Fair Value				Level 1				Level 2				Level 3
Impaired loans carried at fair value		$	50,437			$	—			$	50,437			$	—
Other real estate owned			37,325				—				—				37,325
Covered loans			546,234				—				—				546,234
Covered other real estate owned			88,895				—				—				88,895
Total non-recurring assets at fair value		$	722,891			$	—			$	50,437			$	672,454
		Fair Value Measurements on a Nonrecurring Basis As of December 31, 2011
		Fair Value				Level 1				Level 2				Level 3
Impaired loans carried at fair value		$	70,296			$	—			$	70,296			$	—
Other real estate owned			46,680				—				—				46,680
Covered loans			571,489				—				—				571,489
Covered other real estate owned			78,617				—				—				78,617
Total nonrecurring assets at fair value		$	767,082			$	—			$	70,296			$	696,786
		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			50,866				—				—				50,866
Covered loans			595,428				—				—				595,428
Covered other real estate owned			81,907				—				—				81,907
Total nonrecurring assets at fair value		$	786,849			$	—			$	58,648			$	728,201

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

 

		Investment Securities Available for Sale				Other Real Estate Owned				Covered Loans				Covered Other Real Estate
Beginning balance January 1, 2012		$	2,000			$	46,680			$	571,489			$	78,617
Total gains/(losses) included in net income			—				(9,048	)			—				—
Purchases, sales, issuances, and settlements, net			—				(21,008	)			15,281				(30,258	)
Transfers in or out of Level 3			—				20,701				(40,536	)			40,536
Ending balance September 30, 2012		$	2,000			$	37,325			$	546,234			$	88,895

 

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NOTE 2 – INVESTMENT SECURITIES

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

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

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
		(Dollars in Thousands)
September 30, 2012:
U. S. government agencies		$	8,606			$	289			$	—			$	8,895
State, county and municipal securities			106,541				5,345				(144	)			111,742
Corporate debt securities			11,793				262				(560	)			11,495
Mortgage-backed securities			222,641				6,562				(284	)			228,919
Total securities		$	349,581			$	12,458			$	(988	)		$	361,051
December 31, 2011:
U. S. government agencies		$	14,670			$	267			$	—			$	14,937
State, county and municipal securities			75,665				3,558				(90	)			79,133
Corporate debt securities			11,640				167				(406	)			11,401
Mortgage-backed securities			228,085				6,559				(148	)			234,496
Total securities		$	330,060			$	10,551			$	(644	)		$	339,967
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

The amortized cost and fair value of available-for-sale securities at September 30, 2012 by contractual maturity are summarized in the table below. Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers can prepay obligations without prepayment penalties. Therefore, these securities are not included in the following maturity summary:

 

		Amortized Cost				Fair Value
		(Dollars in Thousands)
Due in one year or less		$	9,385			$	9,428
Due from one year to five years			18,605				19,420
Due from five to ten years			57,227				61,179
Due after ten years			41,723				42,105
Mortgage-backed securities			222,641				228,919
		$	349,581			$	361,051

Securities with a carrying value of approximately $171.7 million serve as collateral to secure public deposits and other purposes required or permitted by law at September 30, 2012.

 

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

 

		Less Than 12 Months								12 Months or More								Total
Description of Securities		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
		(Dollars in Thousands)
September 30, 2012:
U. S. government agencies		$	—			$	—			$	—			$	—			$	—			$	—
State, county and municipal securities			14,653				(132	)			505				(12	)			15,158				(144	)
Corporate debt securities			—				—				5,551				(560	)			5,551				(560	)
Mortgage-backed securities			32,660				(267	)			3,434				(17	)			36,094				(284	)
Total temporarily impaired securities		$	47,313			$	(399	)		$	9,490			$	(589	)		$	56,803			$	(988	)
December 31, 2011:
U. S. government agencies		$	—			$	—			$	—			$	—			$	—			$	—
State, county and municipal securities			10,134				(90	)			—				—				10,134				(90	)
Corporate debt securities			100				—				6,681				(406	)			6,781				(406	)
Mortgage-backed securities			20,929				(148	)			—				—				20,929				(148	)
Total temporarily impaired securities		$	31,163			$	(238	)		$	6,681			$	(406	)		$	37,844			$	(644	)
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	)

NOTE 3 – LOANS

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

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

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

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

 

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

 

(Dollars in Thousands)		September 30, 2012				December 31, 2011				September 30, 2011
Commercial, financial and agricultural		$	189,374			$	142,960			$	159,020
Real estate – construction and development			125,315				130,270				145,770
Real estate – commercial and farmland			713,240				672,765				677,048
Real estate – residential			343,332				330,727				331,236
Consumer installment			43,441				37,296				38,163
Other			25,160				18,068				17,658
		$	1,439,862			$	1,332,086			$	1,368,895

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 $546.2 million, $571.5 million and $595.4 million at September 30, 2012, December 31, 2011 and September 30, 2011, respectively, are not included in the above schedule.

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

 

(Dollars in Thousands)		September 30, 2012				December 31, 2011				September 30, 2011
Commercial, financial and agricultural		$	37,167			$	41,867			$	49,859
Real estate – construction and development			73,356				77,077				82,933
Real estate – commercial and farmland			298,903				321,257				323,760
Real estate – residential			135,154				127,644				135,318
Consumer installment			1,654				3,644				3,558
		$	546,234			$	571,489			$	595,428

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, 2012				December 31, 2011				September 30, 2011
Commercial, financial and agricultural		$	4,285			$	3,987			$	4,570
Real estate – construction and development			8,201				15,020				15,789
Real estate – commercial and farmland			11,408				35,385				24,450
Real estate – residential			13,236				15,498				13,529
Consumer installment			1,095				933				729
		$	38,225			$	70,823			$	59,067

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

 

(Dollars in Thousands)		September 30, 2012				December 31, 2011				September 30, 2011
Commercial, financial and agricultural		$	11,938			$	11,952			$	12,136
Real estate – construction and development			21,971				30,977				32,878
Real estate – commercial and farmland			58,377				75,458				63,940
Real estate – residential			31,189				41,139				34,846
Consumer installment			426				473				451
		$	123,901			$	159,999			$	144,251

 

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

 

		Loans 30-59 Days Past Due				Loans 60-89 Days Past Due				Loans 90 or More Days Past Due				Total Loans Past Due				Current Loans				Total Loans				Loans 90 Days or More Past Due and Still Accruing
		(Dollars in Thousands)
As of September 30, 2012:
Commercial, financial & agricultural		$	1,192			$	639			$	3,786			$	5,617			$	183,757			$	189,374			$	—
Real estate – construction & development			518				152				8,180				8,850				116,465				125,315				—
Real estate – commercial & farmland			3,507				812				11,402				15,721				697,519				713,240				—
Real estate – residential			7,200				2,346				12,372				21,918				321,414				343,332				—
Consumer installment loans			687				284				993				1,964				41,477				43,441				—
Other			—				—				—				—				25,160				25,160				—
Total		$	13,104			$	4,233			$	36,733			$	54,070			$	1,385,792			$	1,439,862			$	—
		Loans 30-59 Days Past Due				Loans 60-89 Days Past Due				Loans 90 or More Days Past Due				Total Loans Past Due				Current Loans				Total Loans				Loans 90 Days or More Past Due and Still Accruing
		(Dollars in Thousands)
As of December 30, 2011:
Commercial, financial & agricultural		$	1,103			$	705			$	3,975			$	5,783			$	137,177			$	142,960			$	—
Real estate – construction & development			2,395				1,507				13,608				17,510				112,760				130,270				—
Real estate – commercial & farmland			6,686				7,071				32,953				46,710				626,055				672,765				—
Real estate – residential			5,229				4,995				12,874				23,098				307,629				330,727				—
Consumer installment loans			963				305				725				1,993				35,303				37,296				—
Other			—				—				—				—				18,068				18,068				—
Total		$	16,376			$	14,583			$	64,135			$	95,094			$	1,236,992			$	1,332,086			$	—
		Loans 30-59 Days Past Due				Loans 60-89 Days Past Due				Loans 90 or More Days Past Due				Total Loans Past Due				Current Loans				Total Loans				Loans 90 Days or More Past Due and Still Accruing
		(Dollars in Thousands)
As of 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

 

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

 

		Loans 30-59 Days Past Due				Loans 60-89 Days Past Due				Loans 90 or More Days Past Due				Total Loans Past Due				Current Loans				Total Loans				Loans 90 Days or More Past Due and Still Accruing
		(Dollars in Thousands)
As of September 30, 2012:
Commercial, financial & agricultural		$	1,384			$	788			$	11,315			$	13,487			$	23,680			$	37,167			$	—
Real estate – construction & development			3,611				1,663				22,194				27,468				45,888				73,356				2,312
Real estate – commercial & farmland			7,072				6,559				51,382				65,013				233,890				298,903				808
Real estate – residential			4,702				3,349				28,559				36,610				98,544				135,154				1,018
Consumer installment loans			56				92				255				403				1,251				1,654				—
Total		$	16,825			$	12,451			$	113,705			$	142,981			$	403,253			$	546,234			$	4,138
		Loans 30-59 Days Past Due				Loans 60-89 Days Past Due				Loans 90 or More Days Past Due				Total Loans Past Due				Current Loans				Total Loans				Loans 90 Days or More Past Due and Still Accruing
		(Dollars in Thousands)
As of December 30, 2011:
Commercial, financial & agricultural		$	968			$	4,297			$	11,253			$	16,518			$	25,349			$	41,867			$	—
Real estate – construction & development			2,444				1,318				27,867				31,629				45,448				77,077				—
Real estate – commercial & farmland			18,282				8,544				64,091				90,917				230,340				321,257				165
Real estate – residential			3,485				1,493				35,950				40,928				86,716				127,644				290
Consumer installment loans			127				270				440				837				2,807				3,644				—
Total		$	25,306			$	15,922			$	139,601			$	180,829			$	390,660			$	571,489			$	455
		Loans 30-59 Days Past Due				Loans 60-89 Days Past Due				Loans 90 or More Days Past Due				Total Loans Past Due				Current Loans				Total Loans				Loans 90 Days or More Past Due and Still Accruing
		(Dollars in Thousands)
As of 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				—
Total		$	26,033			$	13,601			$	128,627			$	168,261			$	427,167			$	595,428			$	2,730

 

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Impaired Loans

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

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

 

		As of and For the Period Ended
		September 30, 2012				December 31, 2011				September 30, 2011
		(Dollars in Thousands)
Nonaccrual loans		$	38,225			$	70,823			$	59,067
Troubled debt restructurings not included above			19,893				17,951				16,591
Total impaired loans		$	58,118			$	88,774			$	75,658
Impaired loans not requiring a related allowance		$	—			$	—			$	—
Impaired loans requiring a related allowance		$	58,118			$	88,774			$	75,658
Allowance related to impaired loans		$	7,681			$	18,478			$	17,010
Average investment in impaired loans		$	73,353			$	88,320			$	88,207
Interest income recognized on impaired loans		$	376			$	637			$	847
Foregone interest income on impaired loans		$	491			$	613			$	202

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

 

		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of September 30, 2012:
Commercial, financial & agricultural		$	8,261			$	—			$	5,089			$	5,089			$	876			$	4,974
Real estate – construction & development			19,583				—				9,682				9,682				1,253				11,879
Real estate – commercial & farmland			25,346				—				20,948				20,948				2,907				33,070
Real estate – residential			24,993				—				21,304				21,304				2,616				22,303
Consumer installment loans			1,220				—				1,095				1,095				29				1,127
Total		$	79,403			$	—			$	58,118			$	58,118			$	7,681			$	73,353

 

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		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of December 31, 2011:
Commercial, financial & agricultural		$	9,592			$	—			$	5,110			$	5,110			$	1,366			$	5,700
Real estate – construction & development			21,893				—				15,672				15,672				4,053				18,667
Real estate – commercial & farmland			48,688				—				45,006				45,006				8,331				42,192
Real estate – residential			25,309				—				22,053				22,053				4,499				21,081
Consumer installment loans			1,056				—				933				933				229				680
Total		$	106,538			$	—			$	88,774			$	88,774			$	18,478			$	88,320
		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of 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

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

 

		As of and For the Period Ended
		September 30, 2012				December 31, 2011				September 30, 2011
		(Dollars in Thousands)
Nonaccrual loans		$	123,901			$	159,999			$	144,251
Troubled debt restructurings not included above			25,926				19,884				10,768
Total impaired loans		$	149,827			$	179,883			$	155,019
Impaired loans not requiring a related allowance		$	149,827			$	179,883			$	155,019
Impaired loans requiring a related allowance		$	—			$	—			$	—
Allowance related to impaired loans		$	—			$	—			$	—
Average investment in impaired loans		$	171,055			$	138,950			$	128,717
Interest income recognized on impaired loans		$	1,319			$	526			$	462
Foregone interest income on impaired loans		$	554			$	202			$	1,515

 

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

 

		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of September 30, 2012:
Commercial, financial & agricultural		$	17,833			$	11,976			$	—			$	11,976			$	—			$	12,932
Real estate – construction & development			34,787				23,833				—				23,833				—				31,653
Real estate – commercial & farmland			98,909				72,802				—				72,802				—				82,430
Real estate – residential			54,020				40,790				—				40,790				—				43,492
Consumer installment loans			890				426				—				426				—				548
Total		$	206,439			$	149,827			$	—			$	149,827			$	—			$	171,055
		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of December 31, 2011:
Commercial, financial & agricultural		$	21,352			$	12,027			$	—			$	12,027			$	—			$	10,210
Real estate – construction & development			47,005				34,363				—				34,363				—				30,610
Real estate – commercial & farmland			106,953				84,740				—				84,740				—				56,607
Real estate – residential			68,411				48,280				—				48,280				—				40,675
Consumer installment loans			623				473				—				473				—				848
Total		$	244,344			$	179,883			$	—			$	179,883			$	—			$	138,950
		Unpaid Contractual Principal Balance				Recorded Investment With No Allowance				Recorded Investment With Allowance				Total Recorded Investment				Related Allowance				Average Recorded Investment
		(Dollars in Thousands)
As of 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

Credit Quality Indicators

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

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

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

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

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

 

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

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

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

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

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

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

 

Risk Grade		Commercial, financial & agricultural				Real estate - construction & development				Real estate - commercial & farmland				Real estate - residential				Consumer installment loans				Other				Total
		(Dollars in Thousands)
10		$	26,291			$	—			$	220			$	411			$	7,887			$	—			$	34,809
15			11,816				4,532				152,678				74,040				1,400				—				244,466
20			80,681				33,603				324,270				105,531				23,038				25,160				592,283
23			5				7,667				8,773				13,650				81				—				30,176
25			62,377				59,013				184,146				113,560				8,502				—				427,598
30			1,508				7,948				14,742				10,535				745				—				35,478
40			6,436				12,396				28,411				25,583				1,780				—				74,606
50			260				156				—				22				8				—				446
60			—				—				—				—				—				—				—
Total		$	189,374			$	125,315			$	713,240			$	343,332			$	43,441			$	25,160			$	1,439,862

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

 

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

 

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The following table presents the non-covered loan portfolio by risk grade as of 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
23			1,192				8,043				9,290				11,985				28				—				30,538
25			55,307				69,618				169,887				122,939				7,391				—				425,142
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 covered loan portfolio by risk grade as of September 30, 2012.

 

Risk Grade		Commercial, financial & agricultural				Real estate - construction & development				Real estate - commercial & farmland				Real estate - residential				Consumer installment loans				Other				Total
		(Dollars in Thousands)
10		$	—			$	8			$	—			$	853			$	—			$	—			$	861
15			91				44				1,673				708				—				—				2,516
20			4,970				13,950				40,912				34,397				319				—				94,548
23			30				1,226				4,638				1,889				—				—				7,783
25			11,986				18,921				130,155				44,999				721				—				206,782
30			4,063				7,494				35,764				9,016				64				—				56,401
40			16,027				31,713				85,761				43,292				550				—				177,343
50			—				—				—				—				—				—				—
60			—				—				—				—				—				—				—
Total		$	37,167			$	73,356			$	298,903			$	135,154			$	1,654			$	—			$	546,234

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

 

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

 

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The following table presents the covered loan portfolio by risk grade as of 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
23			—				54				1,478				690				—				—				2,222
25			22,142				22,664				141,921				51,260				1,386				—				239,373
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			—				—				—				—				—				—				—