Edgar Filing: Ameris Bancorp

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

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, 2014

¨	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 28,160,598 shares of Common Stock outstanding as of October 31, 2014.

AMERIS BANCORP

TABLE OF CONTENTS


		Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements.

	Consolidated Balance Sheets at September 30, 2014, December 31, 2013 and September 30, 2013		1

	Consolidated Statements of Earnings and Comprehensive Income for the Three and Nine Month Periods Ended September 30, 2014 and 2013		2

	Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2014 and 2013		3

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013		4

	Notes to Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		45

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		70

Item 4.	Controls and Procedures.		70

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.		71

Item 1A.	Risk Factors.		71

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		71

Item 3.	Defaults Upon Senior Securities.		71

Item 4.	Mine Safety Disclosures.		71

Item 5.	Other Information.		71

Item 6.	Exhibits.		71

Signatures			72

Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share data)


	September 30, 2014			December 31, 2013			September 30, 2013
	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	69,421		$	62,955		$	53,516
Federal funds sold and interest-bearing accounts		40,165			204,984			73,899
Investment securities available for sale, at fair value		529,509			486,235			312,248
Other investments		12,687			16,828			7,764
Mortgage loans held for sale		110,059			67,278			69,634
Loans, net of unearned income		1,848,759			1,618,454			1,589,267
Purchased loans not covered by FDIC loss share agreements (“purchased non-covered loans”)		673,724			448,753			—
Purchased loans covered by FDIC loss share agreements (“covered loans”)		313,589			390,237			417,649
Less: allowance for loan losses		(22,212	)		(22,377	)		(23,854	)

Loans, net		2,813,860			2,435,067			1,983,062

Other real estate owned, net		35,320			33,351			37,978
Purchased, non-covered other real estate owned, net		13,660			4,276			—
Covered other real estate owned, net		28,883			45,893			52,552

Total other real estate owned, net		77,863			83,520			90,530

Premises and equipment, net		98,752			103,188			65,661
FDIC loss-share receivable		38,233			65,441			81,763
Other intangible assets, net		9,114			6,009			1,972
Goodwill		58,879			35,049			956
Cash value of bank owned life insurance		58,217			49,432			49,095
Other assets		82,649			51,663			28,402

Total assets	$	3,999,408		$	3,667,649		$	2,818,502

Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing	$	816,517		$	668,531		$	475,505
Interest-bearing		2,556,602			2,330,700			1,967,916

Total deposits		3,373,119			2,999,231			2,443,421
Securities sold under agreements to repurchase		32,351			83,516			20,255
Other borrowings		147,409			194,572			5,000
Other liabilities		27,615			18,165			17,201
Subordinated deferrable interest debentures		65,084			55,466			42,269

Total liabilities		3,645,578			3,350,950			2,528,146

Stockholders’ Equity
Preferred stock, stated value $1,000; 5,000,000 shares authorized; 0, 28,000 and 28,000 shares issued and outstanding		—			28,000			27,938
Common stock, par value $1; 100,000,000 shares authorized; 28,157,898; 26,461,769 and 25,270,851 issued		28,158			26,462			25,271
Capital surplus		224,142			189,722			165,835
Retained earnings		109,170			83,991			83,025
Accumulated other comprehensive income (loss)		3,974			(294	)		(531	)
Treasury stock, at cost, 1,383,496; 1,363,342 and 1,363,342 shares		(11,614	)		(11,182	)		(11,182	)

Total stockholders’ equity		353,830			316,699			290,356

Total liabilities and stockholders’ equity	$	3,999,408		$	3,667,649		$	2,818,502

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(amounts in thousands, except per share data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Interest income
Interest and fees on loans	$	39,610		$	29,633		$	109,376		$	88,208
Interest on taxable securities		3,034			1,720			8,972			5,136
Interest on nontaxable securities		496			352			1,143			1,071
Interest on deposits in other banks and federal funds sold		46			44			175			158

Total interest income		43,186			31,749			119,666			94,573

Interest expense
Interest on deposits		2,540			2,025			6,928			6,334
Interest on other borrowings		1,514			404			3,858			1,105

Total interest expense		4,054			2,429			10,786			7,439

Net interest income		39,132			29,320			108,880			87,134
Provision for loan losses		1,669			2,920			4,760			10,008

Net interest income after provision for loan losses		37,463			26,400			104,120			77,126

Noninterest income
Service charges on deposit accounts		6,659			4,948			18,092			14,480
Mortgage banking activity		7,498			5,232			19,510			14,697
Other service charges, commissions and fees		690			593			2,004			1,539
Gain (loss) on sale of securities		132			—			138			171
Other noninterest income		2,922			1,515			6,730			4,145

Total noninterest income		17,901			12,288			46,474			35,032

Noninterest expense
Salaries and employee benefits		20,226			14,412			54,562			41,599
Occupancy and equipment		4,669			3,149			12,804			9,058
Advertising and marketing expenses		594			434			2,022			1,016
Amortization of intangible assets		698			346			1,668			1,068
Data processing and telecommunications expenses		3,928			3,072			11,322			8,478
Credit resolution related expenses		3,186			2,971			8,216			10,164
Merger and conversion charges		551			512			3,873			512
Other noninterest expenses		4,727			3,853			14,669			12,426

Total noninterest expense		38,579			28,749			109,136			84,321

Income before income tax expense		16,785			9,939			41,458			27,837
Income tax expense		5,122			3,262			13,315			9,197

Net income		11,663			6,677			28,143			18,640
Less preferred stock dividends and discount accretion		—			443			286			1,326

Net income available to common shareholders	$	11,663		$	6,234		$	27,857		$	17,314

Other comprehensive income (loss)
Unrealized holding gain (loss) arising during period on investment securities available for sale, net of tax of $114, $2,158, ($2,610) and $4,375		(211	)		(4,007	)		4,847			(8,125	)
Reclassification adjustment for losses (gains) included in earnings, net of tax of $46, $0, $48 and $60		(86	)		—			(90	)		(111	)
Unrealized gain (loss) on cash flow hedges arising during period, net of tax of ($80), $57, $264 and ($591)		149			(106	)		(489	)		1,098

Other comprehensive income (loss)		(148	)		(4,113	)		4,268			(7,138	)

Total comprehensive income	$	11,515		$	2,564		$	32,411		$	11,502

Basic earnings per common share	$	0.44		$	0.26		$	1.08		$	0.72

Diluted earnings per common share	$	0.43		$	0.26		$	1.07		$	0.71

Dividends declared per common share	$	0.05		$	—		$	0.10		$	—

Weighted average common shares outstanding
Basic		26,773			23,901			25,705			23,883
Diluted		27,161			24,316			26,099			24,298

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands, except per share data)

(Unaudited)


	Nine Months Ended						Nine Months Ended
	September 30, 2014						September 30, 2013
	Shares			Amount			Shares			Amount
PREFERRED STOCK
Issued at beginning of period		28,000		$	28,000			28,000		$	27,662
Repurchase of preferred stock		(28,000	)		(28,000	)		—			—
Accretion of fair value of warrant		—			—			—			276

*Issued at end of period*		—		$	—			28,000		$	27,938
COMMON STOCK
Issued at beginning of period		26,461,769		$	26,462			25,154,818		$	25,155
Issuance of restricted shares		68,047			68			83,400			83
Issuance of common stock		1,598,998			1,599			—			—
Cancellation of restricted shares		—			—			(1,000	)		(1	)
Proceeds from exercise of stock options		29,084			29			33,633			34

*Issued at end of period*		28,157,898		$	28,158			25,270,851		$	25,271
CAPITAL SURPLUS
Balance at beginning of period				$	189,722					$	164,949
Stock-based compensation					1,230						592
Issuance of common stock					32,875						—
Proceeds from exercise of stock options					383						376
Issuance of restricted shares					(68	)					(83	)
Cancellation of restricted shares					—						1

*Balance at end of period*				$	224,142					$	165,835
RETAINED EARNINGS
Balance at beginning of period				$	83,991					$	65,710
Net income					28,143						18,640
Cash dividends declared, $0.10 per share					(2,678	)					—
Dividends on preferred shares					(286	)					(1,050	)
Accretion of fair value of warrant					—						(275	)

*Balance at end of period*				$	109,170					$	83,025
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains on securities and derivatives:
Balance at beginning of period				$	(294	)				$	6,607
Other comprehensive income (loss)					4,268						(7,138	)

*Balance at end of period*				$	3,974					$	(531	)
TREASURY STOCK
Balance at beginning of period		(1,363,342	)	$	(11,182	)		(1,355,050	)	$	(11,066	)
Purchase of treasury shares		(20,154	)		(432	)		(8,292	)		(116	)

*Balance at end of period*		(1,383,496	)	$	(11,614	)		(1,363,342	)	$	(11,182	)

*TOTAL STOCKHOLDERS’ EQUITY*				$	353,830					$	290,356

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,
	2014			2013
Cash flows from operating activities:
Net income	$	28,143		$	18,640
Adjustments reconciling net income to net cash provided by operating activities:
Depreciation		5,850			3,683
Stock based compensation expense		1,230			592
Net gains on sale or disposal of premises and equipment		(615	)		(61	)
Net losses or write-downs on sale of other real estate owned		2,344			5,646
Provision for loan losses		4,760			10,008
Accretion of discount on covered loans		(20,822	)		(36,552	)
Accretion of discount on purchased non-covered loans		(5,840	)		—
Accretion of FDIC loss-share receivable, net of amortization of FDIC clawback payable		8,699			19,721
Increase in cash surrender value of BOLI		(973	)		(898	)
Amortization of intangible assets		1,668			1,068
Net amortization of investment securities available for sale		2,609			2,531
Originations of mortgage loans held for sale		(504,164	)		(399,606	)
Proceeds from sales of mortgage loans held for sale		468,671			378,758
Net gains on securities available for sale		(138	)		(171	)
Change attributable to other operating activities		3,685			15,843

Net cash provided by (used in) operating activities		(4,893	)		19,202

Cash flows from investing activities, net of effect of business combinations:
Net decrease in federal funds sold and interest-bearing deposits		180,742			119,778
Proceeds from maturities of securities available for sale		37,706			43,474
Purchase of securities available for sale		(102,340	)		(61,445	)
Proceeds from sales of securities available for sale		92,975			36,669
Purchase of bank owned life insurance		—			(30,000	)
Net increase in loans, excluding purchased non-covered and covered loans		(243,809	)		(155,447	)
Payments received on purchased non-covered loans		58,350			—
Payments received on covered loans		85,946			96,629
Payments received from FDIC under loss share agreements		18,509			58,240
Proceeds from sales of other real estate owned		31,913			55,270
Decrease in restricted equity securities, net		5,116			—
Proceeds from sales of premises and equipment		1,213			1,889
Purchases of premises and equipment		(3,779	)		(4,136	)
Net cash proceeds received from acquisitions		1,099			—

Net cash provided by investing activities		163,641			160,921

Cash flows from financing activities, net of effect of business combinations:
Net increase/(decrease) in deposits		4,864			(181,242	)
Net decrease in securities sold under agreements to repurchase		(56,593	)		(29,865	)
Repayment of other borrowings		(187,032	)		—
Proceeds from other borrowings		117,463			5,000
Redemption of preferred stock		(28,000	)		—
Dividends paid—preferred stock		(286	)		(1,050	)
Dividends paid—common stock		(2,678	)		—
Purchase of treasury shares		(432	)		(116	)
Proceeds from exercise of stock options		412			410

Net cash used in financing activities		(152,282	)		(206,863	)

Net increase (decrease) in cash and due from banks		6,466			(26,740	)
Cash and due from banks at beginning of period		62,955			80,256

Cash and due from banks at end of period	$	69,421		$	53,516

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid/(received) during the period for:
Interest	$	10,773		$	7,840
Income taxes	$	15,008		$	11,304
Loans (excluding purchased non-covered and covered loans) transferred to other real estate owned	$	9,268		$	8,329
Purchased non-covered loans transferred to other real estate owned	$	1,955		$	—
Covered loans transferred to other real estate owned	$	10,840		$	28,725
Issuance of common stock in acquisitions	$	34,474		$	—

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Ameris Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered in Moultrie, Georgia. Ameris conducts substantially all of its operations through its wholly-owned banking subsidiary, Ameris Bank (the “Bank”). At September 30, 2014, the Bank operated 74 retail branches and 11 mortgage offices in select markets in Georgia, Alabama, Florida and South Carolina. Our business model capitalizes on the efficiencies of a large financial services company while still providing the community with the personalized banking service expected by our customers. We manage our Bank through a balance of decentralized management responsibilities and efficient centralized operating systems, products and loan underwriting standards. The Company’s Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within the Company’s established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of their 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, 2014 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto and the report of our registered independent public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Newly Issued Accounting Pronouncements

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

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

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

NOTE 2 – BUSINESS COMBINATIONS

Coastal Bankshares, Inc.

On June 30, 2014, the Company completed its acquisition of The Coastal Bankshares, Inc. (“Coastal”), a bank holding company headquartered in Savannah, Georgia. Upon consummation of the acquisition, Coastal was merged with and into the Company, with Ameris as the surviving entity in the merger. At that time, Coastal’s wholly owned banking subsidiary, The Coastal Bank (“Coastal Bank”), was also merged with and into the Bank. The acquisition grew the Company’s existing market presence, as Coastal Bank had a total of six banking locations in Chatham, Liberty and Effingham Counties, Georgia. Coastal’s common shareholders received 0.4671 of a share of the Company’s common stock in exchange for each share of Coastal’s common stock. As a result, the Company issued 1,598,998 common shares at a fair value of $34.5 million and paid $2.8 million cash in exchange for outstanding warrants.

The acquisition of Coastal was accounted for using the purchase method of accounting in accordance with FASB ASC 805, Business Combinations. Assets acquired, liabilities assumed and consideration exchanged were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available. During the third quarter of 2014, management revised its initial estimates regarding the valuation of other real estate owned. In addition, during the third quarter of 2014, management completed its assessment and recorded the deferred tax assets resulting from differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for income tax purposes. This estimate also reflects acquired net operating loss carryforwards and other acquired assets with built-in losses that are expected to be settled or otherwise recovered in future periods where the realization of such benefits would be subject to applicable limitations under Sections 382 of the Internal Revenue Code of 1986, as amended.

The following table presents the assets acquired and liabilities of Coastal assumed as of June 30, 2014 and their fair value estimates:


(Dollars in Thousands)	As Recorded by Coastal			Initial Fair Value Adjustments			Subsequent Fair Value Adjustments			As Recorded by Ameris
Assets
Cash and cash equivalents	$	3,895		$	—		$	—		$	3,895
Federal funds sold and interest-bearing balances		15,923			—			—			15,923
Investment securities		67,266			(500	)(a)		—			66,766
Other investments		975			—			—			975
Mortgage loans held for sale		7,288			—			—			7,288
Loans		296,141			(16,700	)(b)		—			279,441
Less allowance for loan losses		(3,218	)		3,218	(c)		—			—

Loans, net		292,923			(13,482	)		—			279,441
Other real estate owned		14,992			(3,528	)(d)		(2,600	)(g)		8,864
Premises and equipment		11,882			—			—			11,882
Intangible assets		507			4,266	(e)		—			4,773
Other assets		22,710			—			2,624	(h)		25,334

Total assets	$	438,361		$	(13,244	)	$	24		$	425,141

Liabilities
Deposits:
Noninterest-bearing	$	80,012		$	—		$	—		$	80,012
Interest-bearing		289,012			—			—			289,012

Total deposits		369,024			—			—			369,024
Federal funds purchased and securities sold under agreements to repurchase		5,428			—			—			5,428
Other borrowings		22,005			—			—			22,005
Other liabilities		6,192			—			—			6,192
Subordinated deferrable interest debentures		15,465			(6,413	)(f)		—			9,052

Total liabilities		418,114			(6,413	)		—			411,701

Net identifiable assets acquired over (under) liabilities assumed		20,247			(6,831	)		—			13,440
Goodwill		—			23,854			24			23,830

Net assets acquired over (under) liabilities assumed	$	20,247		$	17,023		$	—		$	37,270

Consideration:
Ameris Bancorp common shares issued		1,598,998
Purchase price per share of the Company’s common stock	$	21.56

Company common stock issued		34,474
Cash exchanged for shares		2,796

Fair value of total consideration transferred	$	37,270

Explanation of fair value adjustments

(a)

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

(b)

Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.

(c)

Adjustment reflects the elimination of Coastal’s allowance for loan losses.

(d)

Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired OREO portfolio.

(e)

Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts.

(f)

Adjustment reflects the fair value adjustment to the subordinated deferrable interest debentures at the acquisition date.

(g)

Adjustment reflects the additional fair value adjustment based on the Company’s evaluation of the acquired OREO portfolio.

(h)

Adjustment reflects the deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.

Goodwill of $23.8 million, which is the excess of the merger consideration over the fair value of net assets acquired, was recorded in the Coastal acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

The results of operations of Coastal subsequent to the acquisition date are included in the Company’s consolidated statements of operations. The following unaudited pro forma information reflects the Company’s estimated consolidated results of operations as if the acquisition had occurred on January 1, 2013, unadjusted for potential cost savings (in thousands).


	Three Months Ended September 30,		Nine Months Ended September 30,
	2013		2014		2013
Net interest income and noninterest income	$	46,373	$	165,913	$	137,590
Net income	$	6,680	$	26,275	$	19,733
Net income available to common stockholders	$	6,237	$	25,989	$	18,407
Income per common share available to common stockholders – basic	$	0.24	$	0.95	$	0.72
Income per common share available to common stockholders – diluted	$	0.24	$	0.94	$	0.71
Average number of shares outstanding, basic		25,500		27,304		25,482
Average number of shares outstanding, diluted		25,915		27,698		25,897

In the acquisition, the Company purchased $279.4 million of loans at fair value, net of $16.7 million, or 5.64%, estimated discount to the outstanding principal balance. Of the total loans acquired, management identified $29.3 million that were considered to be credit impaired and are accounted for under ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payment, management’s estimate of expected total cash payments and fair value of the loans as of acquisition date for purchased credit impaired loans. Contractually required principal and interest payment have been adjusted for estimated prepayments.


Contractually required principal and interest	$	38,194
Non-accretable difference		(5,632	)

Cash flows expected to be collected		32,562
Accretable yield		(3,282	)

Total purchased credit-impaired loans acquired	$	29,280

Prosperity Banking Company

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

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

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


(Dollars in Thousands)	As Recorded by Prosperity			Fair Value Adjustments			As Recorded by Ameris
Assets
Cash and cash equivalents	$	4,285		$	—		$	4,285
Federal funds sold and interest-bearing balances		21,687			—			21,687
Investment securities		151,863			411	(a)		152,274
Other investments		8,727			—			8,727
Loans		487,358			(37,662	)(b)		449,696
Less allowance for loan losses		(6,811	)		6,811	(c)		—

Loans, net		480,547			(30,851	)		449,696
Other real estate owned		6,883			(1,260	)(d)		5,623
Premises and equipment		36,293			—			36,293
Intangible assets		174			4,383	(e)		4,557
Other assets		26,600			1,192	(f)		27,792

Total assets	$	737,059		$	(26,125	)	$	710,934

Liabilities
Deposits:
Noninterest-bearing	$	149,242		$	—		$	149,242
Interest-bearing		324,441			—			324,441

Total deposits		473,683			—			473,683
Federal funds purchased and securities sold under agreements to repurchase		21,530			—			21,530
Other borrowings		185,000			12,313	(g)		197,313
Other liabilities		14,058			455	(h)		14,513
Subordinated deferrable interest debentures		29,500			(16,303	)(i)		13,197

Total liabilities		723,771			(3,535	)		720,236

Net identifiable assets acquired over (under) liabilities assumed		13,288			(22,590	)		(9,302	)
Goodwill		—			34,093			34,093

Net assets acquired over (under) liabilities assumed	$	13,288		$	11,503		$	24,791

Consideration:
Ameris Bancorp common shares issued		1,168,918
Purchase price per share of the Company’s common stock	$	21.07

Company common stock issued		24,629
Cash exchanged for shares		162

Fair value of total consideration transferred	$	24,791

Explanation of fair value adjustments

(a)

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

(b)

Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.

(c)

Adjustment reflects the elimination of Prosperity’s allowance for loan losses.

(d)	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired OREO portfolio.

(e)	Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts.

(f)

Adjustment reflects the adjustment to write-off the non-realizable portion of Prosperity’s deferred tax asset of ($6.644 million), to record the deferred tax asset generated by purchase accounting adjustments of $8.435 million and to record the fair value adjustment of other assets of ($0.599 million) at the acquisition date.

(g)	Adjustment reflects the fair value adjustment (premium) to the FHLB borrowings of $12.741 million and the fair value adjustment to the subordinated debt of $0.428 million.

(h)	Adjustment reflects the fair value adjustment of other liabilities at the acquisition date.

(i)	Adjustment reflects the fair value adjustment to the subordinated deferrable interest debentures at the acquisition date.

Goodwill of $34.1 million, which is the excess of the merger consideration over the fair value of net assets acquired, was recorded in the Prosperity acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

The results of operations of Prosperity subsequent to the acquisition date are included in the Company’s consolidated statements of operations. The following unaudited pro forma information reflects the Company’s estimated consolidated results of operations as if the acquisition had occurred on January 1, 2013, unadjusted for potential cost savings (in thousands).


	Three Months Ended September 30,		Nine Months Ended September 30,
	2013		2013
Net interest income and noninterest income	$	48,541	$	142,390
Net income	$	7,214	$	18,729
Net income available to common stockholders	$	6,771	$	17,403
Income per common share available to common stockholders – basic	$	0.27	$	0.69
Income per common share available to common stockholders – diluted	$	0.27	$	0.68
Average number of shares outstanding, basic		25,070		25,052
Average number of shares outstanding, diluted		25,485		25,467

In the acquisition, the Company purchased $449.7 million of loans at fair value, net of $37.7 million, or 7.73%, estimated discount to the outstanding principal balance. Of the total loans acquired, management identified $67.2 million that were considered to be credit impaired and are accounted for under ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payment, management’s estimate of expected total cash payments and fair value of the loans as of acquisition date for purchased credit impaired loans. Contractually required principal and interest payment have been adjusted for estimated prepayments.


Contractually required principal and interest	$	92,461
Non-accretable difference		(14,311	)

Cash flows expected to be collected		78,150
Accretable yield		(10,985	)

Total purchased credit-impaired loans acquired	$	67,165

On the dates of acquisition, the Company estimated the future cash flows on each individual loan and made the necessary adjustments to reflect the asset at fair value. At each quarter end subsequent to the acquisition dates, the Company revises the estimates of future cash flows based on current information and makes the necessary adjustments to carrying value. The adjustments are performed on a loan-by-loan basis and have resulted in the Company recording a $4,000 provision for loan loss expense during the three month period ended September 30, 2014. There were no adjustments needed during the twelve months ended December 31, 2013 and the nine months ended September 30, 2013.

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


(Dollars in Thousands)	September 30, 2014			December 31, 2013		September 30, 2013
Balance, January 1	$	67,165		$	—	$	—
Charge-offs, net of recoveries		(4	)		—		—
Additions due to acquisitions		29,280			67,165		—
Other (loan payments, transfers, etc.)		(4,440	)		—		—

Ending balance	$	92,001		$	67,165	$	—

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


(Dollars in Thousands)	September 30, 2014			December 31, 2013			September 30, 2013
Balance, January 1	$	381,588		$	—		$	—
Additions due to acquisitions		250,161			382,531			—
Loan payments, transfers, etc.		(50,026	)		(943	)		—

Ending balance	$	581,723		$	381,588		$	—

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


(Dollars in Thousands)	September 30, 2014			December 31, 2013		September 30, 2013
Balance, January 1	$	26,189		$	—	$	—
Additions due to acquisitions		7,799			26,189		—
Accretion		(5,840	)		—		—
Other activity, net		916			—		—

Ending balance	$	29,064		$	26,189	$	—

NOTE 3 – INVESTMENT SECURITIES

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

The amortized cost and estimated fair value of investment securities available for sale at September 30, 2014, December 31, 2013 and September 30, 2013 are presented below:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in Thousands)
September 30, 2014:
U. S. government agencies	$	14,951	$	—	$	(491	)	$	14,460
State, county and municipal securities		134,641		3,708		(714	)		137,635
Corporate debt securities		10,801		237		(73	)		10,965
Mortgage-backed securities		364,399		4,493		(2,443	)		366,449

Total securities	$	524,792	$	8,438	$	(3,721	)	$	529,509

December 31, 2013:
U. S. government agencies	$	14,947	$	—	$	(1,021	)	$	13,926
State, county and municipal securities		112,659		2,269		(2,174	)		112,754
Corporate debt securities		10,311		275		(261	)		10,325
Collateralized debt obligations		1,480		—		—			1,480
Mortgage-backed securities		349,441		2,347		(4,038	)		347,750

Total securities	$	488,838	$	4,891	$	(7,494	)	$	486,235

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

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

The amortized cost and fair value of available-for-sale securities at September 30, 2014 by contractual maturity are summarized in the table below. Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers can prepay obligations without prepayment penalties. The weighted average life of these securities is less than 4.5 years and modeled not to extend beyond 6 years in an increasing rate scenario. Therefore, these securities are not included in the following maturity summary:


	Amortized Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	10,647	$	10,844
Due from one year to five years		35,432		36,856
Due from five to ten years		66,554		67,094
Due after ten years		47,760		48,266
Mortgage-backed securities		364,399		366,449

	$	524,792	$	529,509

Securities with a carrying value of approximately $265.9 million serve as collateral to secure public deposits and for other purposes required or permitted by law at September 30, 2014, compared to $399.0 million and $217.3 million at December 31, 2013 and September 30, 2013, respectively.

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


	Less Than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
September 30, 2014:
U. S. government agencies	$	—	$	—		$	14,460	$	(491	)	$	14,460	$	(491	)
State, county and municipal securities		10,296		(98	)		22,696		(616	)		32,992		(714	)
Corporate debt securities		—		—			4,997		(73	)		4,997		(73	)
Mortgage-backed securities		71,050		(416	)		51,314		(2,027	)		122,364		(2,443	)

Total temporarily impaired securities	$	81,346	$	(514	)	$	93,467	$	(3,207	)	$	174,813	$	(3,721	)

December 31, 2013:
U. S. government agencies	$	13,926	$	(1,021	)	$	—	$	—		$	13,926	$	(1,021	)
State, county and municipal securities		47,401		(1,882	)		3,794		(292	)		51,195		(2,174	)
Corporate debt securities		—		—			4,826		(261	)		4,826		(261	)
Collateralized debt obligations		—		—			—		—			—		—
Mortgage-backed securities		94,989		(2,493	)		23,388		(1,545	)		118,377		(4,038	)

Total temporarily impaired securities	$	156,316	$	(5,396	)	$	32,008	$	(2,098	)	$	188,324	$	(7,494	)

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

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

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, 2014, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at September 30, 2014, these investments are not considered impaired on an other-than-temporary basis.

At September 30, 2014, December 31, 2013 and September 30, 2013, all of the Company’s mortgage-backed securities were obligations of government-sponsored agencies.

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


	September 30, 2014			December 31, 2013			September 30, 2013
	(Dollars in Thousands)
Gross gains on sales of securities	$	141		$	353		$	353
Gross losses on sales of securities		(3	)		(182	)		(182	)

Net realized gains on sales of securities available for sale	$	138		$	171		$	171

Sales proceeds	$	92,975		$	36,669		$	36,669

NOTE 4 – LOANS

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

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

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

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

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


(Dollars in Thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Commercial, financial and agricultural	$	334,783	$	244,373	$	244,991
Real estate – construction and development		154,315		146,371		132,277
Real estate – commercial and farmland		882,160		808,323		799,149
Real estate – residential		436,515		366,882		355,920
Consumer installment		31,403		34,249		36,303
Other		9,583		18,256		20,627

	$	1,848,759	$	1,618,454	$	1,589,267

Purchased non-covered loans are defined as loans that were acquired in bank acquisitions that are not covered by a loss-sharing agreement with the FDIC. Purchased non-covered loans totaling $673.7 million and $448.8 million at September 30, 2014 and December 31, 2013, respectively, are not included in the above schedule. There were no purchased non-covered loans at September 30, 2013.

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


(Dollars in Thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Commercial, financial and agricultural	$	38,077	$	32,141	$	—
Real estate – construction and development		60,262		31,176		—
Real estate – commercial and farmland		296,790		179,898		—
Real estate – residential		273,347		200,851		—
Consumer installment		5,248		4,687		—

	$	673,724	$	448,753	$	—

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 $313.6 million, $390.2 million and $417.6 million at September 30, 2014, December 31, 2013 and September 30, 2013, respectively, are not included in the above schedule.

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


(Dollars in Thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Commercial, financial and agricultural	$	22,545	$	26,550	$	27,768
Real estate – construction and development		27,756		43,179		50,702
Real estate – commercial and farmland		180,566		224,451		237,086
Real estate – residential		82,445		95,173		101,146
Consumer installment		277		884		947

	$	313,589	$	390,237	$	417,649

Nonaccrual and Past Due Loans

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged against interest income. Interest payments on nonaccrual loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Nonaccrual loans are loans whose principal or interest is past due 90 days or more. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the original contractual terms.

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


(Dollars in Thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Commercial, financial and agricultural	$	2,695	$	4,103	$	4,198
Real estate – construction and development		3,037		3,971		4,229
Real estate – commercial and farmland		8,983		8,566		9,548
Real estate – residential		7,608		12,152		13,303
Consumer installment		487		411		442

	$	22,810	$	29,203	$	31,720

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


(Dollars in Thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Commercial, financial and agricultural	$	54	$	11	$	—
Real estate – construction and development		1,969		325		—
Real estate – commercial and farmland		8,776		1,653		—
Real estate – residential		6,132		4,658		—
Consumer installment		76		12		—

	$	17,007	$	6,659	$	—

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


(Dollars in Thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Commercial, financial and agricultural	$	8,441	$	7,257	$	7,872
Real estate – construction and development		8,896		14,781		16,582
Real estate – commercial and farmland		14,617		33,495		37,079
Real estate – residential		7,227		13,278		13,028
Consumer installment		102		341		350

	$	39,283	$	69,152	$	74,911

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


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of September 30, 2014:
Commercial, financial & agricultural	$	271	$	400	$	2,483	$	3,154	$	331,629	$	334,783	$	—
Real estate – construction & development		1,232		285		2,899		4,416		149,899		154,315		—
Real estate – commercial & farmland		3,025		484		8,918		12,427		869,733		882,160		—
Real estate – residential		4,416		2,085		7,303		13,804		422,711		436,515		—
Consumer installment loans		333		113		396		842		30,561		31,403		—
Other		—		—		—		—		9,583		9,583		—

Total	$	9,277	$	3,367	$	21,999	$	34,643	$	1,814,116	$	1,848,759	$	—


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of December 31, 2013:
Commercial, financial & agricultural	$	10,893	$	272	$	4,081	$	15,246	$	229,127	$	244,373	$	—
Real estate – construction & development		1,026		69		3,935		5,030		141,341		146,371		—
Real estate – commercial & farmland		3,981		1,388		7,751		13,120		795,203		808,323		—
Real estate – residential		5,422		1,735		11,587		18,744		348,138		366,882		—
Consumer installment loans		568		197		305		1,070		33,179		34,249		—
Other		—		—		—		—		18,256		18,256		—

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


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of September 30, 2013:
Commercial, financial & agricultural	$	623	$	297	$	4,107	$	5,027	$	239,964	$	244,991	$	—
Real estate – construction & development		1,200		794		4,229		6,223		126,054		132,277		—
Real estate – commercial & farmland		3,883		2,458		9,523		15,864		783,285		799,149		—
Real estate – residential		5,515		3,531		11,818		20,864		335,056		355,920		—
Consumer installment loans		497		255		327		1,079		35,224		36,303		—
Other		—		—		—		—		20,627		20,627		—

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

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


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of September 30, 2014:
Commercial, financial & agricultural	$	33	$	46	$	55	$	134	$	37,943	$	38,077	$	—
Real estate – construction & development		520		135		3,069		3,724		56,538		60,262		1,100
Real estate – commercial & farmland		3,497		1,227		8,266		12,990		283,800		296,790		258
Real estate – residential		3,915		1,440		5,929		11,284		262,063		273,347		—
Consumer installment loans		36		5		76		117		5,131		5,248		—

Total	$	8,001	$	2,853	$	17,395	$	28,249	$	645,475	$	673,724	$	1,358


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of December 31, 2013:
Commercial, financial & agricultural	$	370	$	70	$	11	$	451	$	31,690	$	32,141	$	—
Real estate – construction & development		1,008		89		325		1,422		29,754		31,176		—
Real estate – commercial & farmland		6,851		2,064		1,516		10,431		169,467		179,898		—
Real estate – residential		4,667		1,074		3,428		9,169		191,682		200,851		—
Consumer installment loans		7		17		9		33		4,654		4,687		—

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

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


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of September 30, 2014:
Commercial, financial & agricultural	$	568	$	188	$	1,978	$	2,734	$	19,811	$	22,545	$	—
Real estate – construction & development		632		72		8,659		9,363		18,393		27,756		—
Real estate – commercial & farmland		7,100		322		8,930		16,352		164,214		180,566		305
Real estate – residential		2,694		1,473		5,563		9,730		72,715		82,445		65
Consumer installment loans		2		7		101		110		167		277		—

Total	$	10,996	$	2,062	$	25,231	$	38,289	$	275,300	$	313,589	$	370


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of December 31, 2013:
Commercial, financial & agricultural	$	3,966	$	12	$	6,165	$	10,143	$	16,407	$	26,550	$	—
Real estate – construction & development		843		144		14,055		15,042		28,137		43,179		—
Real estate – commercial & farmland		8,482		4,350		26,428		39,260		185,191		224,451		346
Real estate – residential		7,648		1,914		10,244		19,806		75,367		95,173		—
Consumer installment loans		51		14		305		370		514		884		—

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


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of September 30, 2013:
Commercial, financial & agricultural	$	319	$	50	$	6,695	$	7,064	$	20,704	$	27,768	$	—
Real estate – construction & development		2,831		658		15,781		19,270		31,432		50,702		266
Real estate – commercial & farmland		7,365		5,350		30,503		43,218		193,868		237,086		568
Real estate – residential		2,980		1,727		11,078		15,785		85,361		101,146		823
Consumer installment loans		49		—		311		360		587		947		—

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

Impaired Loans

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

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


	As of and For the Period Ended
	September 30, 2014		December 31, 2013		September 30, 2013
	(Dollars in Thousands)
Nonaccrual loans	$	22,810	$	29,203	$	31,720
Troubled debt restructurings not included above		17,261		17,214		17,024

Total impaired loans	$	40,071	$	46,417	$	48,744

Quarter-to-date interest income recognized on impaired loans	$	117	$	54	$	17

Year-to-date interest income recognized on impaired loans	$	799	$	522	$	468

Quarter-to-date foregone interest income on impaired loans	$	138	$	30	$	216

Year-to-date foregone interest income on impaired loans	$	161	$	418	$	388

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


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment		Nine Month Average Recorded Investment
	(Dollars in Thousands)
As of September 30, 2014:
Commercial, financial & agricultural	$	4,445	$	8	$	2,943	$	2,951	$	631	$	2,402	$	3,285
Real estate – construction & development		8,824		211		4,743		4,954		612		5,243		5,596
Real estate – commercial & farmland		18,955		7,311		8,753		16,064		1,698		16,242		16,312
Real estate – residential		18,251		5,635		9,946		15,581		1,286		15,356		17,169
Consumer installment loans		606		—		521		521		10		517		516

Total	$	51,081	$	13,165	$	26,906	$	40,071	$	4,237	$	39,760	$	42,878


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment		Twelve Month Average Recorded Investment
	(Dollars in Thousands)
As of December 31, 2013:
Commercial, financial & agricultural	$	6,240	$	—	$	4,618	$	4,618	$	435	$	4,669	$	4,844
Real estate – construction & development		11,363		—		5,867		5,867		512		6,011		8,341
Real estate – commercial & farmland		18,456		—		15,479		15,479		1,443		15,860		17,559
Real estate – residential		24,342		—		19,970		19,970		1,472		20,571		20,335
Consumer installment loans		623		—		483		483		9		469		642

Total	$	61,024	$	—	$	46,417	$	46,417	$	3,871	$	47,580	$	51,721


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment		Twelve Month Average Recorded Investment
	(Dollars in Thousands)
As of September 30, 2013:
Commercial, financial & agricultural	$	7,401	$	—	$	4,719	$	4,719	$	820	$	5,052	$	4,900
Real estate – construction & development		14,299		—		6,155		6,155		821		6,775		8,960
Real estate – commercial & farmland		18,628		—		16,241		16,241		1,999		16,366		18,079
Real estate – residential		24,701		—		21,174		21,174		1,530		20,533		20,427
Consumer installment loans		565		—		455		455		10		559		681

Total	$	65,594	$	—	$	48,744	$	48,744	$	5,180	$	49,285	$	53,047

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


	As of and For the Period Ended
	September 30, 2014		December 31, 2013		September 30, 2013
	(Dollars in Thousands)
Nonaccrual loans	$	17,007	$	6,659	$	—
Troubled debt restructurings not included above		583		—		—

Total impaired loans	$	17,590	$	6,659	$	—

Quarter-to-date interest income recognized on impaired loans	$	19	$	—	$	—

Year-to-date interest income recognized on impaired loans	$	35	$	—	$	—

Quarter-to-date foregone interest income on impaired loans	$	18	$	—	$	—

Year-to-date foregone interest income on impaired loans	$	176	$	—	$	—

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


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment		Nine Month Average Recorded Investment
	(Dollars in Thousands)
As of September 30, 2014:
Commercial, financial & agricultural	$	438	$	54	$	—	$	54	$	—	$	98	$	81
Real estate – construction & development		3,794		2,274		—		2,274		—		2,273		1,501
Real estate – commercial & farmland		12,354		8,776		—		8,776		—		7,712		5,976
Real estate – residential		9,610		6,407		—		6,407		—		6,533		6,233
Consumer installment loans		184		79		—		79		—		64		43

Total	$	26,380	$	17,590	$	—	$	17,590	$	—	$	16,680	$	13,834


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment		Twelve Month Average Recorded Investment
	(Dollars in Thousands)
As of December 31, 2013:
Commercial, financial & agricultural	$	19	$	11	$	—	$	11	$	—	$	1	$	—
Real estate – construction & development		542		325		—		325		—		25		6
Real estate – commercial & farmland		2,673		1,653		—		1,653		—		126		32
Real estate – residential		7,712		4,658		—		4,658		—		354		90
Consumer installment loans		20		12		—		12		—		1		—

Total	$	10,996	$	6,659	$	—	$	6,659	$	—	$	507	$	128

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


	As of and For the Period Ended
	September 30, 2014		December 31, 2013		September 30, 2013
	(Dollars in Thousands)
Nonaccrual loans	$	39,283	$	69,152	$	74,911
Troubled debt restructurings not included above		22,757		22,243		21,184

Total impaired loans	$	62,040	$	91,395	$	96,095

Quarter-to-date interest income recognized on impaired loans	$	176	$	175	$	9

Year-to-date interest income recognized on impaired loans	$	1,115	$	968	$	793

Quarter-to-date foregone interest income on impaired loans	$	—	$	44	$	44

Year-to-date foregone interest income on impaired loans	$	94	$	330	$	286

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


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment		Nine Month Average Recorded Investment
	(Dollars in Thousands)
As of September 30, 2014:
Commercial, financial & agricultural	$	11,356	$	8,467	$	—	$	8,467	$	—	$	10,367	$	9,511
Real estate – construction & development		13,268		11,920		—		11,920		—		11,484		14,760
Real estate – commercial & farmland		26,624		23,118		—		23,118		—		23,562		29,904
Real estate – residential		20,331		18,430		—		18,430		—		19,112		21,456
Consumer installment loans		134		105		—		105		—		116		177

Total	$	71,713	$	62,040	$	—	$	62,040	$	—	$	64,641	$	75,808


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment		Twelve Month Average Recorded Investment
	(Dollars in Thousands)
As of December 31, 2013:
Commercial, financial & agricultural	$	9,680	$	7,270	$	—	$	7,270	$	—	$	7,577	$	8,696
Real estate – construction & development		20,915		18,037		—		18,037		—		19,464		21,794
Real estate – commercial & farmland		46,612		40,749		—		40,749		—		42,014		51,584
Real estate – residential		29,089		24,998		—		24,998		—		24,345		28,452
Consumer installment loans		394		341		—		341		—		346		304

Total	$	106,690	$	91,395	$	—	$	91,395	$	—	$	93,745	$	110,830


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Three Month Average Recorded Investment		Nine Month Average Recorded Investment
	(Dollars in Thousands)
As of September 30, 2013:
Commercial, financial & agricultural	$	10,645	$	7,884	$	—	$	7,884	$	—	$	8,327	$	9,052
Real estate – construction & development		25,401		20,890		—		20,890		—		21,860		22,734
Real estate – commercial & farmland		51,105		43,279		—		43,279		—		48,558		54,292
Real estate – residential		28,078		23,692		—		23,692		—		24,810		29,316
Consumer installment loans		404		350		—		350		—		318		295

Total	$	115,633	$	96,095	$	—	$	96,095	$	—	$	103,872	$	115,689

Credit Quality Indicators

The Company uses a nine category risk grading system to assign a risk grade to each loan in the portfolio. Every loan is assigned a risk rating, with the exception of credit card receivables and overdraft protection loans which are treated as pools and assigned a risk rating. All relationships greater than $1.0 million and the majority of relationships greater than $250,000 are reviewed annually by the Bank’s independent internal loan review department or an independent third party loan review. The following is a description of the general characteristics of the grades:

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

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

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

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

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

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

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

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

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

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


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	114,298	$	171	$	251	$	479	$	6,287	$	—	$	121,486
15		29,665		4,114		136,303		51,508		1,124		—		222,714
20		110,337		50,427		478,551		241,457		17,700		9,583		908,055
23		186		9,292		9,574		9,469		305		—		28,826
25		73,251		83,245		217,226		105,635		4,842		—		484,199
30		3,438		1,781		16,217		10,060		254		—		31,750
40		3,608		5,285		23,950		17,907		890		—		51,640
50		—		—		88		—		—		—		88
60		—		—		—		—		1		—		1

Total	$	334,783	$	154,315	$	882,160	$	436,515	$	31,403	$	9,583	$	1,848,759

The following table presents the loan portfolio, excluding purchased non-covered and covered loans, by risk grade as of December 31, 2013.


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	66,983	$	—	$	265	$	419	$	6,714	$	—	$	74,381
15		24,789		4,655		147,157		52,335		1,276		—		230,212
20		93,852		45,195		431,790		165,339		18,619		18,256		773,051
23		127		8,343		10,219		12,641		274		—		31,604
25		50,373		78,736		181,645		103,427		6,310		—		420,491
30		2,111		2,876		11,849		13,558		197		—		30,591
40		6,011		6,566		25,398		19,153		859		—		57,987
50		127		—		—		10		—		—		137
60		—		—		—		—		—		—		—

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

The following table presents the loan portfolio, excluding purchased non-covered and covered loans, by risk grade as of September 30, 2013:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	65,033	$	—	$	278	$	420	$	7,028	$	—	$	72,759
15		20,668		5,080		147,355		56,464		1,243		—		230,810
20		89,216		37,765		421,669		142,186		19,691		20,627		731,154
23		97		7,085		10,054		13,275		218		—		30,729
25		60,407		72,942		183,371		109,604		7,034		—		433,358
30		3,019		2,264		12,089		11,427		153		—		28,952
40		6,326		7,141		24,333		22,534		936		—		61,270
50		225		—		—		10		—		—		235
60		—		—		—		—		—		—		—

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

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


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	3,187	$	—	$	—	$	292	$	486	$	—	$	3,965
15		5,023		447		14,136		15,336		519		—		35,461
20		11,230		12,345		90,915		64,178		2,034		—		180,702
23		8		—		—		1,208		—		—		1,216
25		16,467		38,426		167,458		175,313		2,065		—		399,729
30		1,494		2,164		9,300		7,071		19		—		20,048
40		668		6,880		14,981		9,915		121		—		32,565
50		—		—		—		34		4		—		38
60		—		—		—		—		—		—		—

Total	$	38,077	$	60,262	$	296,790	$	273,347	$	5,248	$	—	$	673,724

The following table presents the purchased non-covered loan portfolio by risk grade as of December 31, 2013:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	1,865	$	—	$	—	$	289	$	451	$	—	$	2,605
15		4,606		7		12,998		16,160		703		—		34,474
20		5,172		3,960		43,802		34,576		1,383		—		88,893
23		—		—		—		—		—		—		—
25		19,638		20,733		102,260		129,923		1,888		—		274,442
30		576		1,760		9,554		10,878		194		—		22,962
40		284		4,716		11,284		9,025		68		—		25,377
50		—		—		—		—		—		—		—
60		—		—		—		—		—		—		—

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

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

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


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	—	$	—	$	—	$	—	$	—	$	—	$	—
15		—		2		795		531		—		—		1,328
20		1,302		3,380		33,200		15,957		71		—		53,910
23		145		547		14,640		5,815		—		—		21,147
25		5,687		11,725		89,201		35,344		41		—		141,998
30		4,827		3,006		8,808		8,649		43		—		25,333
40		10,584		9,096		33,922		16,149		122		—		69,873
50		—		—		—		—		—		—		—
60		—		—		—		—		—		—		—

Total	$	22,545	$	27,756	$	180,566	$	82,445	$	277	$	—	$	313,589

The following table presents the covered loan portfolio by risk grade as of December 31, 2013:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	—	$	—	$	—	$	—	$	—	$	—	$	—
15		—		16		1,048		638		—		—		1,702
20		2,184		8,549		34,674		21,363		193		—		66,963
23		134		1,085		17,037		4,748		51		—		23,055
25		7,508		9,611		101,657		38,427		235		—		157,438
30		5,125		2,006		21,297		6,979		17		—		35,424
40		11,599		21,912		48,738		23,018		388		—		105,655
50		—		—		—		—		—		—		—
60		—		—		—		—		—		—		—

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

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


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	—	$	—	$	—	$	—	$	—	$	—	$	—
15		—		22		1,098		641		—		—		1,761
20		2,697		11,347		34,252		22,545		208		—		71,049
23		135		1,080		16,708		2,902		51		—		20,876
25		7,609		7,360		108,886		39,632		250		—		163,737
30		1,485		5,505		24,790		9,196		14		—		40,990
40		15,842		25,388		51,352		26,230		424		—		119,236
50		—		—		—		—		—		—		—
60		—		—		—		—		—		—		—

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

Troubled Debt Restructurings

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession. Concessions may include interest rate reductions to below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. The Company has exhibited the greatest success for rehabilitation of a loan by a reduction in the rate alone (maintaining the amortization of the debt) or a combination of a rate reduction and the forbearance of previously past due interest or principal. This has most typically been evidenced in certain commercial real estate loans whereby a disruption in the borrower’s cash flow resulted in an extended past due status, of which the borrower was unable to catch up completely as the cash flow of the property ultimately stabilized at a level lower than its original level. A reduction in rate, coupled with a forbearance of unpaid principal and/or interest, allowed the net cash flows to service the debt under the modified terms.

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

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

In the normal course of business, the Company renews loans with a modification of the interest rate or terms that are not deemed as troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first nine months of 2014 and 2013 totaling $8.0 million and $17.0 million, respectively, under such parameters. In addition, the Company offers consumer loan customers an annual skip-a-pay program that is based on certain qualifying parameters and not based on financial difficulties. The Company does not treat these as troubled debt restructurings.

As of September 30, 2014, December 31, 2013 and September 30, 2013, the Company had a balance of $20.5 million, $20.9 million and $20.2 million, respectively, in troubled debt restructurings, excluding purchased non-covered and covered loans. The Company has recorded $4.4 million, $2.1 million and $2.1 million in previous charge-offs on such loans at September 30, 2014, December 31, 2013 and September 30, 2013, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $2.2 million, $2.1 million and $1.7 million at September 30, 2014, December 31, 2013 and September 30, 2013, respectively. At September 30, 2014, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

During the three and nine month periods ending September 30, 2014, the Company modified loans as troubled debt restructurings with principal balances of $763,000 and $2.4 million, respectively. These modifications impacted the Company’s allowance for loan losses by $49,000 and $203,000, respectively, for the three and nine month periods ended September 30, 2014. Troubled debt restructurings with an outstanding balance of $528,000 at June 30, 2014 defaulted during the three months ended September 30, 2014 and these defaults did not have a material impact on the Company’s allowance for loan loss. Troubled debt restructurings with an outstanding balance of $1.3 million at December 31, 2013 defaulted during the first nine months of 2014 and these defaults did not have a material impact on the Company’s allowance for loan loss.

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


As of September 30, 2014	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Commercial, financial & agricultural		4	$	257		4	$	507
Real estate – construction & development		11		1,917		4		196
Real estate – commercial & farmland		21		7,080		2		1,672
Real estate – residential		43		7,973		10		759
Consumer installment		9		34		12		93

Total		88	$	17,261		32	$	3,227


As of December 31, 2013	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Commercial, financial & agricultural		4	$	515		3	$	525
Real estate – construction & development		8		1,896		2		32
Real estate – commercial & farmland		17		6,913		4		2,273
Real estate – residential		37		7,818		8		834
Consumer installment		6		72		3		19

Total		72	$	17,214		20	$	3,683


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

Total		64	$	17,024		16	$	3,150

As of September 30, 2014, the Company had a balance of $583,000 in troubled debt restructurings included in purchased non-covered loans. The Company did not have any troubled debt restructurings included in purchased non-covered loans as of December 31, 2013 and September 30, 2013. The Company has not recorded any previous charge-offs on such loans at September 30, 2014. At September 30, 2014, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

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


As of September 30, 2014	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		—	$	—		—	$	—
Real estate – construction & development		1		305		—		—
Real estate – commercial & farmland		—		—		—		—
Real estate – residential		4		275		2		247
Consumer installment		1		3		—		—

Total		6	$	583		2	$	247

As of September 30, 2014, December 31, 2013 and September 30, 2013, the Company had a balance of $25.0 million, $27.3 million and $28.4 million, respectively, in troubled debt restructurings included in covered loans. The Company has recorded $2.1 million, $1.6 million and $3.7 million in previous charge-offs on such loans at September 30, 2014, December 31, 2013 and September 30, 2013, respectively. At September 30, 2014, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

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


As of September 30, 2014	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		1	$	26		1	$	3
Real estate – construction & development		3		3,024		3		56
Real estate – commercial & farmland		15		8,501		6		1,225
Real estate – residential		94		11,202		13		965
Consumer installment		1		4		—		—

Total		114	$	22,757		23	$	2,249


As of December 31, 2013	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		1	$	13		5	$	71
Real estate – construction & development		3		3,256		4		52
Real estate – commercial & farmland		13		7,255		5		3,946
Real estate – residential		83		11,719		8		942
Consumer installment		—		—		2		10

Total		100	$	22,243		24	$	5,021


As of September 30, 2013	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		1	$	12		3	$	40
Real estate – construction & development		5		4,308		4		690
Real estate – commercial & farmland		11		6,200		7		4,805
Real estate – residential		79		10,461		11		1,874
Consumer installment		—		—		1		5

Total		96	$	20,981		26	$	7,414

Allowance for Loan Losses

The allowance for loan losses represents an allowance for probable incurred losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on non-accruing, past due and other loans that management believes might be potentially impaired or warrant additional attention. The Company segregates the loan portfolio by type of loan and utilizes this segregation in evaluating exposure to risks within the portfolio. In addition, based on internal reviews and external reviews performed by independent auditors and regulatory authorities, the Company further segregates the loan portfolio by loan grades based on an assessment of risk for a particular loan or group of loans. Certain reviewed loans are assigned specific allowances when a review of relevant data determines that a general allocation is not sufficient or when the review affords management the opportunity to adjust the amount of exposure in a given credit. In establishing allowances, management considers historical loan loss experience but adjusts this data with a significant emphasis on 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 the Company’s markets, unemployment rates, the effect of weather conditions on agricultural related entities and other significant local economic events.

The Company has developed a methodology for determining the adequacy of the allowance for loan losses which is monitored by the Company’s Chief Credit Officer. Procedures provide for the assignment of a risk rating for every loan included in the total loan portfolio, with the exception of certain mortgage loans serviced at a third party, mortgage warehouse lines 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. All relationships greater than $1.0 million and the majority of relationships greater than $250,000 are reviewed annually by the Bank’s independent internal loan review department or an independent third party loan review firm. As a result of these loan reviews, certain loans may be identified as having deteriorating credit quality. Other loans that surface as problem loans may also be assigned specific reserves. Past due loans are assigned risk ratings based on the number of days past due. The calculation of the allowance for loan losses, including underlying data and assumptions, is reviewed regularly by the Company’s Chief Financial Officer and the independent internal loan review department.

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

During the nine months ended September 30, 2014, the year ended December 31, 2013 and the nine months ended September 30, 2013, the Company recorded provision for loan loss expense of $685,000, $1.5 million and $1.3 million, respectively, to account for losses where the initial estimate of cash flows was found to be excessive on loans acquired in FDIC-assisted transactions. During the nine months ended September 30, 2014, the Company recorded provision for loan loss expense of $4,000 to account for losses where the initial estimate of cash flows was found to be excessive on purchased, non-covered loans. Charge-offs on purchased loans, both covered and non-covered, are recorded when impairment is recorded. Provision expense for covered loans is recorded net of the indemnification by the FDIC loss-share agreements.

The following table details activity in the allowance for loan losses by portfolio segment for the periods indicated. 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			Purchased non-covered loans			Covered loans			Total
	(Dollars in Thousands)
Three months ended September 30, 2014:
Balance, June 30, 2014	$	2,185		$	5,431		$	8,317		$	5,166		$	1,155		$	—		$	—		$	22,254
Provision for loan losses		540			63			1,237			595			(862	)		4			92			1,669
Loans charged off		(191	)		(296	)		(953	)		(406	)		(129	)		(4	)		(376	)		(2,355	)
Recoveries of loans previously charged off		47			96			31			52			134			—			284			644

Balance, September 30, 2014	$	2,581		$	5,294		$	8,632		$	5,407		$	298		$	—		$	—		$	22,212

Nine months ended September 30, 2014:
Balance, January 1, 2014	$	1,823		$	5,538		$	8,393		$	6,034		$	589		$	—		$	—		$	22,377
Provision for loan losses		1,627			(26	)		2,311			529			(370	)		4			685			4,760
Loans charged off		(1,099	)		(518	)		(2,255	)		(1,339	)		(343	)		(4	)		(1,514	)		(7,072	)
Recoveries of loans previously charged off		230			300			183			183			422			—			829			2,147

Balance, September 30, 2014	$	2,581		$	5,294		$	8,632		$	5,407		$	298		$	—		$	—		$	22,212

Period-end amount allocated to:
Loans individually evaluated for impairment	$	611		$	540		$	1,682		$	1,272		$	—		$	—		$	—		$	4,105
Loans collectively evaluated for impairment		1,970			4,754			6,950			4,135			298			—			—			18,107

Ending balance	$	2,581		$	5,294		$	8,632		$	5,407		$	298		$	—		$	—		$	22,212

Loans:

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company