Form 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 March 31, 2013

OR

 

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

Commission File Number: 001-13901

 

 

 

LOGO

AMERIS BANCORP

(Exact name of registrant as specified in its charter)

 

 

 

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

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

(Address of principal executive offices)

(229) 890-1111

(Registrant’s telephone number)

 

 

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

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

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

 

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

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

There were 23,876,680 shares of Common Stock outstanding as of April 30, 2013.

 

 

 


Item 1. Financial Statements

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

 

     March 31,
2013
    December 31,
2012
    March 31,
2012
 
     (Unaudited)     (Audited)     (Unaudited)  

Assets

      

Cash and due from banks

   $ 50,487      $ 80,256      $ 64,963   

Federal funds sold and interest bearing accounts

     81,205        193,677        194,172   

Investment securities available for sale, at fair value

     324,029        346,909        371,791   

Other investments

     5,528        6,832        10,967   

Mortgage loans held for sale

     42,332        48,786        14,863   

Loans

     1,492,753        1,450,635        1,323,844   

Covered loans

     460,724        507,712        653,377   

Less: allowance for loan losses

     23,382        23,593        28,689   
  

 

 

   

 

 

   

 

 

 

Loans, net

     1,930,095        1,934,754        1,948,532   
  

 

 

   

 

 

   

 

 

 

Other real estate owned

     40,434        39,850        40,035   

Covered other real estate owned

     77,915        88,273        85,803   
  

 

 

   

 

 

   

 

 

 

Total other real estate owned

     118,349        128,123        125,838   
  

 

 

   

 

 

   

 

 

 

Premises and equipment, net

     72,340        75,983        72,755   

FDIC loss-share receivable

     160,979        159,724        220,016   

Intangible assets

     2,676        3,040        4,179   

Goodwill

     956        956        956   

Cash value of bank owned life insurance

     45,832        15,603        —     

Other assets

     26,843        24,409        14,202   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 2,861,651      $ 3,019,052      $ 3,043,234   
  

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

      

Liabilities

      

Deposits:

      

Noninterest-bearing

   $ 490,961      $ 510,751      $ 444,707   

Interest-bearing

     1,999,012        2,113,912        2,220,653   
  

 

 

   

 

 

   

 

 

 

Total deposits

     2,489,973        2,624,663        2,665,360   

Securities sold under agreements to repurchase

     22,919        50,120        28,790   

Other borrowings

     —          —          3,810   

Other liabilities

     22,768        22,983        5,308   

Subordinated deferrable interest debentures

     42,269        42,269        42,269   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     2,577,929        2,740,035        2,745,537   
  

 

 

   

 

 

   

 

 

 

Commitments and contingencies

      

Stockholders’ Equity

      

Preferred stock, stated value $1,000; 5,000,000 shares authorized; 28,000, 28,000 and 52,000 shares issued and outstanding

     27,753        27,662        50,884   

Common stock, par value $1; 30,000,000 shares authorized; 25,238,635, 25,154,818 and 25,150,318 shares issued

     25,239        25,155        25,150   

Capital surplus

     165,078        164,949        166,579   

Retained earnings

     70,554        65,710        59,402   

Accumulated other comprehensive income

     6,274        6,607        6,513   

Treasury stock, at cost, 1,362,955, 1,355,050 and 1,336,174 shares

     (11,176     (11,066     (10,831
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     283,722        279,017        297,697   
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,861,651      $ 3,019,052      $ 3,043,234   
  

 

 

   

 

 

   

 

 

 

See notes to unaudited consolidated financial statements

 

1


AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(dollars in thousands, except per share data)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2013     2012  

Interest income

    

Interest and fees on loans

   $ 28,716      $ 29,482   

Interest on taxable securities

     1,697        2,309   

Interest on nontaxable securities

     375        365   

Interest on deposits in other banks

     85        120   

Interest on federal funds sold

     —          6   
  

 

 

   

 

 

 

Total interest income

     30,873        32,282   
  

 

 

   

 

 

 

Interest expense

    

Interest on deposits

     2,226        4,084   

Interest on other borrowings

     309        471   
  

 

 

   

 

 

 

Total interest expense

     2,535        4,555   
  

 

 

   

 

 

 

Net interest income

     28,338        27,727   

Provision for loan losses

     2,923        12,882   
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     25,415        14,845   
  

 

 

   

 

 

 

Noninterest income

    

Service charges on deposit accounts

     4,837        4,386   

Mortgage origination fees

     4,464        1,475   

Other service charges, commissions and fees

     329        391   

Gain on acquisition

     —          20,037   

Gain on sale of securities

     172        —     

Other

     1,558        975   
  

 

 

   

 

 

 

Total noninterest income

     11,360        27,264   
  

 

 

   

 

 

 

Noninterest expense

    

Salaries and employee benefits

     13,806        11,446   

Occupancy and equipment expense

     2,931        3,335   

Advertising and marketing expense

     255        349   

Amortization of intangible assets

     364        220   

Data processing and communications costs

     2,570        1,925   

Other operating expenses

     8,958        16,971   
  

 

 

   

 

 

 

Total noninterest expense

     28,884        34,246   
  

 

 

   

 

 

 

Income before income tax expense

     7,891        7,863   

Applicable income tax expense

     2,606        2,498   
  

 

 

   

 

 

 

Net income

   $ 5,285      $ 5,365   
  

 

 

   

 

 

 

Preferred stock dividends

     441        815   
  

 

 

   

 

 

 

Net income available to common stockholders

   $ 4,844      $ 4,550   
  

 

 

   

 

 

 

Other comprehensive loss

    

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

     (429     (689

Reclassification adjustment for gains included in net income, net of tax

     (112     —     

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

     209        (94
  

 

 

   

 

 

 

Other comprehensive loss

   $ (332   $ (783
  

 

 

   

 

 

 

Comprehensive income

   $ 4,512      $ 3,767   
  

 

 

   

 

 

 

Basic and Diluted earnings per share

   $ 0.20      $ 0.19   
  

 

 

   

 

 

 

Weighted average common shares outstanding

    

Basic

     23,868        23,762   

Diluted

     24,246        23,916   

See notes to unaudited consolidated financial statements

 

2


AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in thousands, except per share data)

(Unaudited)

 

     Three Months Ended     Three Months Ended  
     March 31, 2013     March 31, 2012  
     Shares      Amount     Shares      Amount  

PREFERRED STOCK

          

Balance at beginning of period

     28,000       $ 27,662        52,000       $ 50,727   

Accretion of fair value of warrant

     —           91        —           157   
  

 

 

    

 

 

   

 

 

    

 

 

 

Balance at end of period

     28,000       $ 27,753        52,000       $ 50,884   

COMMON STOCK

          

Balance at beginning of period

     25,154,818       $ 25,155        25,087,468       $ 25,087   

Issuance of restricted shares

     81,400         81        62,450         62   

Proceeds from exercise of stock options

     2,417         3        400         1   
  

 

 

    

 

 

   

 

 

    

 

 

 

Balance at end of period

     25,238,635       $ 25,239        25,150,318       $ 25,150   

CAPITAL SURPLUS

          

Balance at beginning of period

      $ 164,949         $ 166,639   

Stock-based compensation

        197           —     

Proceeds from exercise of stock options

        13           2   

Issuance of restricted shares

        (81        (62
     

 

 

      

 

 

 

Balance at end of period

      $ 165,078         $ 166,579   

RETAINED EARNINGS

          

Balance at beginning of period

      $ 65,710         $ 54,852   

Net income

        5,284           5,365   

Dividends on preferred shares

        (349        (657

Accretion of fair value warrant

        (91        (158
     

 

 

      

 

 

 

Balance at end of period

      $ 70,554         $ 59,402   

ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX

          

Unrealized gains on securities and derivatives:

          

Balance at beginning of period

      $ 6,607         $ 7,296   

Other comprehensive income during the period

        (333        (783
     

 

 

      

 

 

 

Balance at end of period

      $ 6,274         $ 6,513   

TREASURY STOCK

          

Balance at beginning of period

      $ 11,066         $ 10,831   

Purchase of treasury shares

        110           —     
     

 

 

      

 

 

 

Balance at end of period

      $ 11,176         $ 10,831   
     

 

 

      

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

      $ 283,722         $ 297,697   
     

 

 

      

 

 

 

See notes to unaudited consolidated financial statements.

 

3


AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2013     2012  

Cash flows from operating activities:

    

Net income

   $ 5,285      $ 5,365   

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

    

Depreciation

     1,246        1,143   

Stock based compensation expense

     197        —     

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

     6        (4

Net gains on securities available for sale

     (172     —     

Gain on acquisition

     —          (20,037

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

     3,047        7,252   

Provision for loan losses

     2,923        12,882   

Amortization of intangible assets

     364        220   

Net change in mortgage loans held for sale

     6,454        (3,300

Other prepaids, deferrals and accruals, net

     11,571        4,201   
  

 

 

   

 

 

 

Net cash provided by operating activities

     30,921        7,722   
  

 

 

   

 

 

 

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

    

Net decrease (increase) in federal funds sold and interest bearing deposits

     112,472        34,870   

Proceeds from maturities of securities available for sale

     20,746        21,912   

Purchase of securities available for sale

     (25,328     (15,637

Purchase of bank owned life insurance

     (28,674     —     

Decrease in restricted equity securities, net

     1,304        —     

Proceeds from sales of securities available for sale

     26,802        760   

Net change in loans

     (13,805     17,496   

Proceeds from sales of other real estate owned

     10,140        16,296   

Proceeds from sales of premises and equipment

     713        305   

(Increase) decrease in FDIC indemnification asset

     (1,255     75,032   

Net cash proceeds received from FDIC-assisted acquisitions

     —          65,050   

Purchases of premises and equipment

     (1,470     (1,075
  

 

 

   

 

 

 

Net cash provided by investing activities

     101,645        215,009   
  

 

 

   

 

 

 

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

    

Net (decrease) increase in deposits

     (134,690     (187,242

Net decrease in securities sold under agreements to repurchase

     (27,201     (8,875

Repayment of other borrowings

     —          (26,524

Dividends paid - preferred stock

     (350     (657

Purchase of treasury shares

     (110     —     

Proceeds from exercise of stock options

     16        2   
  

 

 

   

 

 

 

Net cash used in financing activities

     (162,335     (223,296
  

 

 

   

 

 

 

Net decrease in cash and due from banks

     (29,769     (565

Cash and due from banks at beginning of period

     80,256        65,528   
  

 

 

   

 

 

 

Cash and due from banks at end of period

   $ 50,487      $ 64,963   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF NON-CASH INFORMATION

    

Cash paid during the period for:

    

Interest

   $ 2,805      $ 5,098   

Income taxes

   $ 780      $ —     

Loans transferred to other real estate owned

   $ 15,541      $ 14,291   

See notes to unaudited consolidated financial statements

 

4


AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Ameris Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered in Moultrie, Georgia. Ameris conducts substantially all of its operations through its wholly-owned banking subsidiary, Ameris Bank (the “Bank”). At March 31, 2013 the Bank operated 57 branches in select markets in Georgia, Alabama, Florida and South Carolina. Our business model capitalizes on the efficiencies of a large financial services company while still providing the community with the personalized banking service expected by our customers. We manage our Bank through a balance of decentralized management responsibilities and efficient centralized operating systems, products and loan underwriting standards. Ameris’ Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within Ameris’ established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of his or her unique market.

The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended March 31, 2013 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto and the report of our registered independent public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Newly Adopted Accounting Pronouncements

ASU 2013-02 - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). ASU 2013-02 requires an entity to provide information about the amounts reclassified from accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under United States generally accepted accounting principles to be reclassified to net income in its entirety in the same reporting period. For all other amounts, an entity is required to cross-reference to other disclosures that provide additional details about these amounts. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. It did not have a material effect on the Company’s results of operations, financial position or disclosures.

ASU 2012-06 - Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (“ASU 2012-06”). When an entity recognizes an indemnification asset and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs as a result of a change in the cash flows expected to be collected on the indemnified asset, ASU 2012-06 requires the entity to recognize the change in the measurement of the indemnification asset on the same basis as the indemnified assets. Any amortization of changes in value of the indemnification asset should be limited to the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets. ASU 2012-06 is effective for fiscal years beginning on or after December 15, 2012, and early adoption is permitted. It is to be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. ASU 2012-06 did not have a material effect on the Company’s results of operations, financial position or disclosures.

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

 

5


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

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

Fair Value of Financial Instruments

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

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

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

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

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

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

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

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

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

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

 

6


Loans: The carrying amount of variable-rate loans that reprice frequently and have no significant change in credit risk approximates fair value. The fair value of fixed-rate loans is estimated based on discounted contractual cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The fair value of impaired loans is estimated based on discounted contractual cash flows or underlying collateral values, where applicable. A loan is determined to be impaired if the Company believes it is probable that all principal and interest amounts due according to the terms of the note will not be collected as scheduled. The fair value of impaired loans is determined in accordance with ASC 310-10, Accounting by Creditors for Impairment of a Loan, and generally results in a specific reserve established through a charge to the provision for loan losses. Losses on impaired loans are charged to the allowance when management believes the uncollectability of a loan is confirmed. Management has determined that the majority of impaired loans are Level 3 assets due to the extensive use of market appraisals. To the extent that market appraisals or other methods do not produce reliable determinations of fair value, these assets are deemed to be Level 3.

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

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

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

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

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

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

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

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

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

 

7


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

Although the Company has determined that the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself or the counterparty. However, as of December 31, 2012 and 2011, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.

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

 

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

Financial assets:

              

Loans, net

   $ 1,930,095       $ —         $ 1,458,604       $ 501,874       $ 1,960,478   

Financial liabilities:

              

Deposits

     2,489,973         —           2,491,282         —           2,491,282   

 

                                                                                              
            Fair Value Measurements at December 31, 2012 Using:  
     Carrying
Amount
     Level 1      Level 2      Level 3      Total  
     (Dollars in Thousands)  

Financial assets:

              

Loans, net

   $ 1,934,754       $ —         $ 1,406,366       $ 560,226       $ 1,966,592   

Financial liabilities:

              

Deposits

     2,624,663         —           2,624,883         —           2,624,883   

 

                                                                                              
            Fair Value Measurements at March 31, 2012 Using:  
     Carrying
Amount
     Level 1      Level 2      Level 3      Total  
     (Dollars in Thousands)  

Financial assets:

              

Loans, net

   $ 1,948,532       $ —         $ 1,258,402       $ 722,983       $ 1,981,385   

Financial liabilities:

              

Deposits

     2,665,360         —           2,667,731         —           2,667,731   

Other borrowings

     3,810         —           3,854         —           3,854   

 

8


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

 

                                                                                   
     Fair Value Measurements on a Recurring Basis
As of March 31, 2013
 
     Fair Value      Quoted Prices
in Active
Markets for
Identical
Assets

(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

U.S. government agencies

   $ 5,015       $ —         $ 5,015       $ —     

State, county and municipal securities

     115,532         —           115,532         —     

Corporate debt securities

     10,297         —           8,297         2,000   

Mortgage-backed securities

     193,185         4,054         189,131         —     

Mortgage loans held for sale

     42,332         —           42,332         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring assets at fair value

   $ 366,361       $ 4,054       $ 360,307       $ 2,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments

   $ 2,553       $ —         $ 2,553       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring liabilities at fair value

   $ 2,553       $ —         $ 2,553       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                   
     Fair Value Measurements on a Recurring Basis
As of December 31, 2012
 
     Fair Value      Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

U.S. government agencies

   $ 6,870       $ —         $ 6,870       $ —     

State, county and municipal securities

     114,390         4,854         109,536         —     

Corporate debt securities

     10,328         —           8,328         2,000   

Mortgage-backed securities

     215,321         23,893         191,428         —     

Mortgage loans held for sale

     48,786         —           48,786         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring assets at fair value

   $ 395,695       $ 28,747       $ 364,948       $ 2,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments

   $ 2,978       $ —         $ 2,978       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring liabilities at fair value

   $ 2,978       $ —         $ 2,978       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                   
     Fair Value Measurements on a Recurring Basis
As of March 31, 2012
 
     Fair Value      Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

U.S. government agencies

   $ 28,848       $ —         $ 28,848       $ —     

State, county and municipal securities

     81,997         —           81,997         —     

Corporate debt securities

     11,385         —           9,385         2,000   

Mortgage-backed securities

     249,561         2,292         247,269         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring assets at fair value

   $ 371,791       $ 2,292       $ 367,499       $ 2,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments

   $ 2,089       $ —         $ 2,089       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring liabilities at fair value

   $ 2,089       $ —         $ 2,089       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

9


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

 

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

Impaired loans carried at fair value

   $ 51,150       $ —         $ —         $ 51,150   

Other real estate owned

     40,434         —           —           40,434   

Covered loans

     460,724         —           —           460,724   

Covered other real estate owned

     77,915         —           —           77,915   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring assets at fair value

   $ 630,223       $ —         $ —         $ 630,223   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements on a Nonrecurring Basis
As of December 31, 2012
 
     Fair
Value
     Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Impaired loans carried at fair value

   $ 52,514       $ —         $ —         $ 52,514   

Other real estate owned

     39,850         —           —           39,850   

Covered loans

     507,712         —           —           507,712   

Covered other real estate owned

     88,273         —           —           88,273   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring assets at fair value

   $ 688,349       $ —         $ —         $ 688,349   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements on a Nonrecurring Basis
As of March 31, 2012
 
     Fair
Value
     Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Impaired loans carried at fair value

   $ 69,606       $ —         $ —         $ 69,606   

Other real estate owned

     40,035         —           —           40,035   

Covered loans

     653,377         —           —           653,377   

Covered other real estate owned

     85,803         —           —           85,803   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring assets at fair value

   $ 848,821       $ —         $ —         $ 848,821   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


Below is the Company’s reconciliation of Level 3 assets as of March 31, 2013.

 

     Investment
Securities
Available
for Sale
     Impaired Loans
Carried at Fair
Value
    Other Real
Estate
Owned
    Covered
Loans
    Covered Other
Real Estate
Owned
 

Beginning balance January 1, 2013

   $ 2,000       $ 52,514      $ 39,850      $ 507,712      $ 88,273   

Total gains/(losses) included in net income

     —           —          (15     —          (3,032

Purchases, sales, issuances, and settlements, net

     —           1,262        (2,027     (31,449     (22,865

Transfers in or out of Level 3

     —           (2,626     2,626        (15,539     15,539   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance March 31, 2013

   $ 2,000       $ 51,150      $ 40,434      $ 460,724      $ 77,915   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 2 – INVESTMENT SECURITIES

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

The amortized cost and estimated fair value of investment securities available for sale at March 31, 2013, December 31, 2012 and March 31, 2012 are presented below:

 

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

March 31, 2013:

          

U. S. government agencies

   $ 5,000       $ 15       $ —        $ 5,015   

State, county and municipal securities

     110,628         5,051         (147     115,532   

Corporate debt securities

     10,542         355         (600     10,297   

Mortgage-backed securities

     188,492         5,342         (649     193,185   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities

   $ 314,662       $ 10,763       $ (1,396   $ 324,029   
  

 

 

    

 

 

    

 

 

   

 

 

 

December 31, 2012:

          

U. S. government agencies

   $ 6,605       $ 271       $ (6   $ 6,870   

State, county and municipal securities

     109,736         4,864         (210     114,390   

Corporate debt securities

     10,545         330         (547     10,328   

Mortgage-backed securities

     209,824         5,701         (204     215,321   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities

   $ 336,710       $ 11,166       $ (967   $ 346,909   
  

 

 

    

 

 

    

 

 

   

 

 

 

March 31, 2012:

          

U. S. government agencies

   $ 28,634       $ 258       $ (44   $ 28,848   

State, county and municipal securities

     78,440         3,723         (166     81,997   

Corporate debt securities

     11,639         217         (471     11,385   

Mortgage-backed securities

     244,232         5,573         (244     249,561   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total debt securities

   $ 362,945       $ 9,771       $ (925   $ 371,791   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

11


The amortized cost and fair value of available-for-sale securities at March 31, 2013 by contractual maturity are summarized in the table below. Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers can prepay obligations without prepayment penalties. Therefore, these securities are not included in the following maturity summary.

 

     Amortized
Cost
     Fair
Value
 
     (Dollars in Thousands)  

Due in one year or less

   $ 3,027       $ 3,041   

Due from one year to five years

     29,250         30,645   

Due from five to ten years

     58,652         61,448   

Due after ten years

     35,241         35,710   

Mortgage-backed securities

     188,492         193,185   
  

 

 

    

 

 

 
   $ 314,662       $ 324,029   
  

 

 

    

 

 

 

Securities with a carrying value of approximately $245.4 million serve as collateral to secure public deposits and other purposes required or permitted by law at March 31, 2013.

The following table details the gross unrealized losses and fair value of securities aggregated by category and duration of continuous unrealized loss position at March 31, 2013, December 31, 2012 and March 31, 2012.

 

     Less Than 12 Months     12 Months or More     Total  
Description of Securities    Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
 
     (Dollars in Thousands)  

March 31, 2013:

               

U. S. government agencies

   $ —         $ —        $ —         $ —        $ —         $ —     

State, county and municipal securities

     19,159         (138     505         (9     19,664         (147

Corporate debt securities

     244         (6     4,506         (594     4,750         (600

Mortgage-backed securities

     55,189         (648     1,120         (1     56,309         (649
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

   $ 74,592       $ (792   $ 6,131       $ (604   $ 80,723       $ (1,396
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

December 31, 2012:

               

U. S. government agencies

   $ 4,994       $ (6   $ —         $ —        $ 4,994       $ (6

State, county and municipal securities

     15,595         (199     505         (11     16,100         (210

Corporate debt securities

     —           —          4,560         (547     4,560         (547

Mortgage-backed securities

     23,951         (181     3,617         (23     27,568         (204
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

   $ 44,540       $ (386   $ 8,682       $ (581   $ 53,222       $ (967
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

March 31, 2012:

               

U. S. government agencies

   $ 8,960       $ (44   $ —         $ —        $ 8,960       $ (44

State, county and municipal securities

     8,960         (166     —           —          8,960         (166

Corporate debt securities

     100         —          6,611         (471     6,711         (471

Mortgage-backed securities

     37,860         (234     2,292         (10     40,152         (244
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

   $ 55,880       $ (444   $ 8,903       $ (481   $ 64,783       $ (925
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

12


NOTE 3 – LOANS

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

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

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

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

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

 

(Dollars in Thousands)

   March 31,
2013
     December 31,
2012
     March 31,
2012
 

Commercial, financial and agricultural

   $ 180,888       $ 174,217       $ 149,320   

Real estate – construction and development

     130,161         114,199         122,331   

Real estate – commercial and farmland

     766,227         732,322         658,054   

Real estate – residential

     355,716         346,480         328,053   

Consumer installment

     37,335         40,178         42,085   

Other

     22,426         43,239         24,001   
  

 

 

    

 

 

    

 

 

 
   $ 1,492,753       $ 1,450,635       $ 1,323,844   
  

 

 

    

 

 

    

 

 

 

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 $460.7 million, $507.7 million and $653.4 million at March 31, 2013, December 31, 2012 and March 31, 2012, respectively, are not included in the above schedule.

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

 

(Dollars in Thousands)

   March 31,
2013
     December 31,
2012
     March 31,
2012
 

Commercial, financial and agricultural

   $ 28,568       $ 32,606       $ 43,157   

Real estate – construction and development

     57,114         70,184         93,430   

Real estate – commercial and farmland

     260,159         278,506         350,244   

Real estate – residential

     113,668         125,056         162,768   

Consumer installment

     1,215         1,360         3,778   
  

 

 

    

 

 

    

 

 

 
   $ 460,724       $ 507,712       $ 653,377   
  

 

 

    

 

 

    

 

 

 

 

13


Nonaccrual and Past Due Loans

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

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

 

(Dollars in Thousands)

   March 31,
2013
     December 31,
2012
     March 31,
2012
 

Commercial, financial and agricultural

   $ 3,756       $ 4,138       $ 4,732   

Real estate – construction and development

     9,390         9,281         10,647   

Real estate – commercial and farmland

     9,798         11,962         21,539   

Real estate – residential

     13,840         12,595         14,065   

Consumer installment

     692         909         1,275   
  

 

 

    

 

 

    

 

 

 
   $ 37,476       $ 38,885       $ 52,258   
  

 

 

    

 

 

    

 

 

 

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

 

(Dollars in Thousands)

   March 31,
2013
     December 31,
2012
     March 31,
2012
 

Commercial, financial and agricultural

   $ 8,718       $ 10,765       $ 14,185   

Real estate – construction and development

     18,956         20,027         35,170   

Real estate – commercial and farmland

     47,580         55,946         79,620   

Real estate – residential

     23,018         28,672         40,609   

Consumer installment

     243         302         637   
  

 

 

    

 

 

    

 

 

 
   $ 98,515       $ 115,712       $ 170,221   
  

 

 

    

 

 

    

 

 

 

 

14


The following table presents an analysis of non-covered past due loans as of March 31, 2013, December 31, 2012 and March 31, 2012:

 

     Loans
30-59
Days Past
Due
     Loans
60-89
Days
Past Due
     Loans 90
or More
Days Past
Due
     Total
Loans
Past Due
     Current
Loans
     Total
Loans
     Loans 90
Days or
More Past
Due and
Still
Accruing
 
     (Dollars in Thousands)  

As of March 31, 2013:

                    

Commercial, financial & agricultural

   $ 1,797       $ 149       $ 3,729       $ 5,675       $ 175,213       $ 180,888       $ —     

Real estate – construction & development

     1,538         1,538         8,312         11,388         118,773         130,161         —     

Real estate – commercial & farmland

     11,115         3,220         9,352         23,687         742,540         766,227         —     

Real estate – residential

     7,686         1,719         11,699         21,104         334,612         355,716         —     

Consumer installment loans

     745         169         563         1,477         35,858         37,335         —     

Other

     —           —           —           —           22,426         22,426         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 22,881       $ 6,795       $ 33,655       $ 63,331       $ 1,429,422       $ 1,492,753       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Loans
30-59
Days Past
Due
     Loans
60-89
Days
Past Due
     Loans 90
or More
Days Past
Due
     Total
Loans
Past Due
     Current
Loans
     Total
Loans
     Loans 90
Days or
More Past
Due and
Still
Accruing
 
     (Dollars in Thousands)  

As of December 30, 2012:

                    

Commercial, financial & agricultural

   $ 258       $ 312       $ 3,969       $ 4,539       $ 169,678       $ 174,217       $ —     

Real estate – construction & development

     347         332         8,969         9,648         104,551         114,199         —     

Real estate – commercial & farmland

     2,867         2,296         9,544         14,707         717,615         732,322         —     

Real estate – residential

     7,651         2,766         10,990         21,407         325,073         346,480         —     

Consumer installment loans

     702         391         815         1,908         38,270         40,178         —     

Other

     —           —           —           —           43,239         43,239         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 11,825       $ 6,097       $ 34,287       $ 52,209       $ 1,398,426       $ 1,450,635       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Loans
30-59
Days Past
Due
     Loans
60-89
Days
Past Due
     Loans 90
or More
Days Past
Due
     Total
Loans
Past Due
     Current
Loans
     Total
Loans
     Loans 90
Days or
More Past
Due and
Still
Accruing
 
     (Dollars in Thousands)  

As of March 31, 2012:

                    

Commercial, financial & agricultural

   $ 1,477       $ 291       $ 4,559       $ 6,327       $ 142,993       $ 149,320       $ —     

Real estate – construction & development

     2,356         481         9,531         12,368         109,963         122,331         —     

Real estate – commercial & farmland

     9,991         2,412         19,646         32,049         626,005         658,054         —     

Real estate – residential

     3,905         6,175         13,298         23,378         304,675         328,053         —     

Consumer installment loans

     856         497         1,070         2,423         39,662         42,085         —     

Other

     —           —           —           —           24,001         24,001         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 18,585       $ 9,856       $ 48,104       $ 76,545       $ 1,247,299       $ 1,323,844       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

15


The following table presents an analysis of covered past due loans as of March 31, 2013, December 31, 2012 and March 31, 2012:

 

                                                                                                                      
     Loans
30-59
Days Past
Due
     Loans
60-89
Days
Past Due
     Loans 90
or More
Days Past
Due
     Total
Loans
Past Due
     Current
Loans
     Total
Loans
     Loans 90
Days or
More Past
Due and
Still
Accruing
 
     (Dollars in Thousands)  

As of March 31, 2013:

                    

Commercial, financial & agricultural

   $ 756       $ 314       $ 7,270       $ 8,340       $ 20,228       $ 28,568       $ 98   

Real estate – construction & development

     3,971         876         17,415         22,262         34,852         57,114         —     

Real estate – commercial & farmland

     10,227         2,837         42,464         55,528         204,631         260,159         —     

Real estate – residential

     5,608         345         18,895         24,848         88,820         113,668         48   

Consumer installment loans

     41         11         205         257         958         1,215         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 20,603       $ 4,383       $ 86,249       $ 111,235       $ 349,489       $ 460,724       $ 146   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                                                      
     Loans
30-59
Days Past
Due
     Loans
60-89
Days
Past Due
     Loans 90
or More
Days Past
Due
     Total
Loans
Past Due
     Current
Loans
     Total
Loans
     Loans 90
Days or
More Past
Due and
Still
Accruing
 
     (Dollars in Thousands)  

As of December 30, 2012:

                    

Commercial, financial & agricultural

   $ 2,390       $ 1,105       $ 10,612       $ 14,107       $ 18,499       $ 32,606       $ 98  

Real estate – construction & development

     1,584         2,592         19,656         23,832         46,352         70,184         1,077  

Real estate – commercial & farmland

     11,451         7,373         52,570         71,394         207,112         278,506         1,347  

Real estate – residential

     6,066         3,396         24,976         34,438         90,618         125,056         779  

Consumer installment loans

     45         13         258         316         1,044         1,360         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 21,536       $ 14,479       $ 108,072       $ 144,087       $ 363,625       $ 507,712       $ 3,301  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                                                      
     Loans
30-59
Days Past
Due
     Loans
60-89
Days
Past Due
     Loans 90
or More
Days Past
Due
     Total
Loans
Past Due
     Current
Loans
     Total
Loans
     Loans 90
Days or
More Past
Due and
Still
Accruing
 
     (Dollars in Thousands)  

As of March 31, 2012:

                    

Commercial, financial & agricultural

   $ 682       $ 430       $ 14,229       $ 15,341       $ 27,816       $ 43,157       $ 549   

Real estate – construction & development

     2,704         778         32,302         35,784         57,646         93,430         909   

Real estate – commercial & farmland

     12,905         6,994         68,282         88,181         262,063         350,244         2,583   

Real estate – residential

     5,859         3,514         34,870         44,243         118,525         162,768         3   

Consumer installment loans

     65         68         685         818         2,960         3,778         241   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 22,215       $ 11,784       $ 150,368       $ 184,367       $ 469,010       $ 653,377       $ 4,285   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

16


Impaired Loans

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

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

 

     As of and For the Period Ended  
     March 31,
2013
     December 31,
2012
     March 31,
2012
 
     (Dollars in Thousands)  

Nonaccrual loans

   $ 37,476       $ 38,885       $ 52,258   

Troubled debt restructurings not included above

     18,513         18,744         26,848   
  

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 55,989       $ 57,629       $ 79,106   
  

 

 

    

 

 

    

 

 

 

Impaired loans not requiring a related allowance

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Impaired loans requiring a related allowance

   $ 55,989       $ 57,629       $ 79,106   
  

 

 

    

 

 

    

 

 

 

Allowance related to impaired loans

   $ 4,839       $ 5,115       $ 9,500   
  

 

 

    

 

 

    

 

 

 

Average investment in impaired loans

   $ 56,808       $ 70,209       $ 83,940   
  

 

 

    

 

 

    

 

 

 

Interest income recognized on impaired loans

   $ 78       $ 495       $ 57   
  

 

 

    

 

 

    

 

 

 

Foregone interest income on impaired loans

   $ 54       $ 718       $ 187   
  

 

 

    

 

 

    

 

 

 

The following table presents an analysis of information pertaining to non-covered impaired loans as of March 31, 2013, December 31, 2012 and March 31, 2012:

 

     Unpaid
Contractual
Principal
Balance
     Recorded
Investment
With No
Allowance
     Recorded
Investment
With
Allowance
     Total
Recorded
Investment
     Related
Allowance
     Average
Recorded
Investment
 
     (Dollars in Thousands)  

As of March 31, 2013:

                 

Commercial, financial & agricultural

   $ 7,818       $ —         $ 4,555       $ 4,555       $ 740       $ 4,747   

Real estate – construction & development

     20,633         —           11,273         11,273         922         11,144   

Real estate – commercial & farmland

     22,996         —           18,676         18,676         1,816         19,793   

Real estate – residential

     24,777         —           20,792         20,792         1,344         20,320   

Consumer installment loans

     920         —           693         693         17         804   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 77,144       $ —         $ 55,989       $ 55,989       $ 4,839       $ 56,808   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


     Unpaid
Contractual
Principal
Balance
     Recorded
Investment
With No
Allowance
     Recorded
Investment
With
Allowance
     Total
Recorded
Investment
     Related
Allowance
     Average
Recorded
Investment
 
     (Dollars in Thousands)  

As of December 31, 2012:

                 

Commercial, financial & agricultural

   $ 8,024       $ —         $ 4,940       $ 4,940       $ 743       $ 4,968   

Real estate – construction & development

     20,316         —           11,016         11,016         910         11,706   

Real estate – commercial & farmland

     25,076         —           20,910         20,910         2,191         30,638   

Real estate – residential

     24,155         —           19,848         19,848         1,246         21,813   

Consumer installment loans

     1,187         —           915         915         25         1,084   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 78,758       $ —         $ 57,629       $ 57,629       $ 5,115       $ 70,209   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Unpaid
Contractual
Principal
Balance
     Recorded
Investment
With No
Allowance
     Recorded
Investment
With
Allowance
     Total
Recorded
Investment
     Related
Allowance
     Average
Recorded
Investment
 
     (Dollars in Thousands)  

As of March 31, 2012:

                 

Commercial, financial & agricultural

   $ 7,599       $ —         $ 4,732       $ 4,732       $ 932       $ 4,921   

Real estate – construction & development

     20,593         —           11,952         11,952         1,993         13,812   

Real estate – commercial & farmland

     45,098         —           39,304         39,304         3,615         42,155   

Real estate – residential

     24,845         —           21,843         21,843         2,928         21,948   

Consumer installment loans

     1,391         —           1,275         1,275         32         1,104   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 99,526       $ —         $ 79,106       $ 79,106       $ 9,500       $ 83,940   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     As of and For the Period Ended  
     March 31,
2013
     December 31,
2012
     March 31,
2012
 
     (Dollars in Thousands)  

Nonaccrual loans

   $ 98,515       $ 115,712       $ 170,221   

Troubled debt restructurings not included above

     21,592         19,194         18,220   
  

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 120,107       $ 134,906       $ 188,441   
  

 

 

    

 

 

    

 

 

 

Impaired loans not requiring a related allowance

   $ 120,107       $ 134,906       $ 188,441   
  

 

 

    

 

 

    

 

 

 

Impaired loans requiring a related allowance

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Allowance related to impaired loans

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Average investment in impaired loans

   $ 127,507       $ 163,825       $ 184,162   
  

 

 

    

 

 

    

 

 

 

Interest income recognized on impaired loans

   $ 169       $ 849       $ 179   
  

 

 

    

 

 

    

 

 

 

Foregone interest income on impaired loans

   $ 147       $ 491       $ 441   
  

 

 

    

 

 

    

 

 

 

 

18


The following table presents an analysis of information pertaining to impaired covered loans as of March 31, 2013, December 31, 2012 and March 31, 2012:

 

     Unpaid
Contractual
Principal
Balance
     Recorded
Investment
With No
Allowance
     Recorded
Investment
With
Allowance
     Total
Recorded
Investment
     Related
Allowance
     Average
Recorded
Investment
 
     (Dollars in Thousands)  

As of March 31, 2013:

                 

Commercial, financial & agricultural

   $ 24,301       $ 8,754       $ —         $ 8,754       $ —         $ 9,778   

Real estate – construction & development

     78,421         23,978         —           23,978         —           23,607   

Real estate – commercial & farmland

     139,197         55,822         —           55,822         —           60,026   

Real estate – residential

     54,422         31,310         —           31,310         —           33,823   

Consumer installment loans

     324         243         —           243         —           273   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 296,665       $ 120,107       $ —         $ 120,107       $ —         $ 127,507   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Unpaid
Contractual
Principal
Balance
     Recorded
Investment
With No
Allowance
     Recorded
Investment
With
Allowance
     Total
Recorded
Investment
     Related
Allowance
     Average
Recorded
Investment
 
     (Dollars in Thousands)  

As of December 31, 2012:

                 

Commercial, financial & agricultural

   $ 27,060       $ 10,802       $ —         $ 10,802       $ —         $ 12,506   

Real estate – construction & development

     85,279         23,236         —           23,236         —           29,970   

Real estate – commercial & farmland

     159,493         64,231         —           64,231         —           78,790   

Real estate – residential

     63,559         36,335         —           36,335         —           42,061   

Consumer installment loans

     393         302         —           302         —           498   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 335,784       $ 134,906       $ —         $ 134,906       $ —         $ 163,825   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Unpaid
Contractual
Principal
Balance
     Recorded
Investment
With No
Allowance
     Recorded
Investment
With
Allowance
     Total
Recorded
Investment
     Related
Allowance
     Average
Recorded
Investment
 
     (Dollars in Thousands)  

As of March 31, 2012:

                 

Commercial, financial & agricultural

   $ 24,085       $ 14,260       $ —         $ 14,260       $ —         $ 13,144   

Real estate – construction & development

     59,102         37,831         —           37,831         —           36,097   

Real estate – commercial & farmland

     128,389         90,847         —           90,847         —           87,793   

Real estate – residential

     65,971         44,866         —           44,866         —           46,573   

Consumer installment loans

     786         637         —           637         —           555   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 278,333       $ 188,441       $ —         $ 188,441       $ —         $ 184,162   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

19


Credit Quality Indicators

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

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

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

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

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

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

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

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

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

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

 

20


The following table presents the non-covered loan portfolio by risk grade as of March 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   $ 32,223      $ —        $ 304      $ 500      $ 7,241      $ —        $ 40,268   
15     11,569        4,794        146,563        68,212        1,635        —          232,773   
20     75,503        34,947        385,984        127,294        19,623        22,426        665,777   
23     45        6,606        8,970        13,662        120        —          29,403   
25     52,631        66,012        187,567        112,096        7,340        —          425,646   
30     3,324        6,004        12,334        10,573        250        —          32,485   
40     5,494        11,643        24,505        23,379        1,126        —          66,147   
50     99        155        —          —          —          —          254   
60     —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total   $ 180,888      $ 130,161      $ 766,227      $ 355,716      $ 37,335      $ 22,426      $ 1,492,753   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents the non-covered loan portfolio by risk grade as of December 31, 2012:

 

Risk
Grade
  Commercial,
financial &
agricultural
    Real estate -
construction &
development
    Real estate -
commercial &
farmland
    Real estate -
residential
    Consumer
installment loans
    Other     Total  
    (Dollars in Thousands)  
10   $ 24,623      $ —        $ 309      $ 464      $ 7,597      $ —        $ 32,993   
15     11,316        4,373        147,966        71,254        1,591        —          236,500   
20     79,522        31,413        351,997        114,418        21,361        43,239        641,950   
23     42        8,521        9,012        13,788        70        —          31,433   
25     49,071        52,577        176,395        113,591        7,576        —          399,210   
30     2,343        3,394        19,401        9,672        488        —          35,298   
40     7,200        13,765        27,242        23,292        1,495        —          72,994   
50     100        156        —          1        —          —          257   
60     —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total   $ 174,217      $ 114,199      $ 732,322      $ 346,480      $ 40,178      $ 43,239      $ 1,450,635   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents the non-covered loan portfolio by risk grade as of March 31, 2012:

 

Risk
Grade
  Commercial,
financial &
agricultural
    Real estate -
construction &
development
    Real estate -
commercial &
farmland
    Real estate -
residential
    Consumer
installment loans
    Other     Total  
    (Dollars in Thousands)  
10   $ 18,767      $ 19      $ 211      $ 415      $ 7,042      $ —        $ 26,454   
15     14,063        5,402        155,568        80,623        1,198        —          256,854   
20     63,200        33,805        269,746        85,022        19,478        24,001        495,252   
23     265        8,458        9,188        11,719        1        —          29,631   
25     44,035        58,943        164,642        107,530        11,983        —          387,133   
30     3,148        1,955        20,551        16,135        540        —          42,329   
40     5,716        13,459        38,148        26,515        1,828        —          85,666   
50     123        290        —          94        15        —          522   
60     3        —          —          —          —          —          3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total   $ 149,320      $ 122,331      $ 658,054      $ 328,053      $ 42,085      $ 24,001      $ 1,323,844   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


The following table presents the covered loan portfolio by risk grade as of March 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     —          34        1,598        638        —          —          2,270   
20     3,117        11,106        36,020        27,547        266        —          78,056   
23     75        1,248        9,153        1,946        —          —          12,422   
25     8,135        10,184        110,985        40,863        508        —          170,675   
30     2,979        4,457        35,601        8,784        50        —          51,871   
40     14,262        30,085        66,802        33,890        391        —          145,430   
50     —          —          —          —          —          —          —     
60     —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total   $ 28,568      $ 57,114      $ 260,159      $ 113,668      $ 1,215      $ —        $ 460,724   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents the covered loan portfolio by risk grade as of December 31, 2012:

 

Risk
Grade
  Commercial,
financial &
agricultural
    Real estate -
construction &
development
    Real estate -
commercial &
farmland
    Real estate -
residential
    Consumer
installment loans
        Other         Total  
    (Dollars in Thousands)  
10   $ —        $ —        $ —        $ —        $ —        $ —        $ —     
15     —          39        1,640        644        —          —          2,323   
20     3,997        12,194        37,098        31,337        292        —          84,918   
23     28        1,174        9,576        2,052        —          —          12,830   
25     10,013        19,216        114,849        40,194        558        —          184,830   
30     4,294        7,214        38,665        11,883        50        —          62,106   
40     14,274        30,347        76,678        38,946        460        —          160,705   
50     —          —          —          —          —          —          —     
60     —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total   $ 32,606      $ 70,184      $ 278,506      $ 125,056      $ 1,360      $ —        $ 507,712   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents the covered loan portfolio by risk grade as of March 31, 2012:

 

Risk
Grade
  Commercial,
financial &
agricultural
    Real estate -
construction &
development
    Real estate -
commercial &
farmland
    Real estate -
residential
    Consumer
installment loans
        Other         Total  
    (Dollars in Thousands)  
10   $ 216      $ 9      $ —        $ 1,036      $ 458      $ —        $ 1,719   
15     26        51        1,734        579        12        —          2,402   
20     4,592        5,541        24,784        17,716        622        —          53,255   
23     11        1,534        3,763        1,686        —          —          6,994   
25     17,075        31,707        157,031        75,809        1,550        —          283,172   
30     2,400        10,628        49,518        12,044        102        —          74,692   
40     18,837        43,960        113,414        53,898        1,034        —          231,143   
50     —          —          —          —          —          —          —     
60     —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total   $ 43,157      $ 93,430      $ 350,244      $ 162,768      $ 3,778      $ —        $ 653,377   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


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 the loan by a reduction in the rate alone (maintaining the amortization of the debt) or a combination of a rate reduction and the forbearance of previously past due interest or principal. This has most typically been evidenced in certain commercial real estate loans whereby a disruption in the borrower’s cash flow resulted in an extended past due status, of which the borrower was unable to catch up completely as the cash flow of the property ultimately stabilized at a level lower than its original level. A reduction in rate, coupled with a forbearance of unpaid principal and/or interest, allowed the net cash flows to service the debt under the modified terms.

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

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

In the normal course of business, the Company renews loans with a modification of the interest rate or terms that are not deemed as troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first three months of 2013 totaling $27.4 million and loans in 2012 totaling $40.3 million under such parameters. In addition, the Company offers consumer loan customers an annual skip-a-pay program that is based on certain qualifying parameters and not based on financial difficulties. The Company does not treat these as troubled debt restructurings.

 

23


The following table presents the amount of troubled debt restructurings by loan class, classified separately as accrual and non-accrual at March 31, 2013, December 31, 2012 and March 31, 2012:

 

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

Loan class:

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

Commercial, financial & agricultural

     5       $ 799         —         $ —     

Real estate – construction & development

     5         1,883         1         43   

Real estate – commercial & farmland

     16         8,878         3         3,595   

Real estate – residential

     26         6,953         3         1,111   

Consumer installment

     —           —           1         6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     52       $ 18,513         8       $ 4,755   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of December 31, 2012    Accruing Loans      Non-Accruing Loans  

Loan class:

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

Commercial, financial & agricultural

     5       $ 802         —         $ —     

Real estate – construction & development

     5         1,735         —           —     

Real estate – commercial & farmland

     16         8,947         3         4,149   

Real estate – residential

     28         7,254         2         1,022   

Consumer installment

     1         6         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     55       $ 18,744         5       $ 5,171   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of March 31, 2012    Accruing Loans      Non-Accruing Loans  

Loan class:

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

Real estate – construction & development

     6       $ 1,305         4       $ 1,626   

Real estate – commercial & farmland

     18         17,765         2         2,176   

Real estate – residential

     22         7,778         3         1,065   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     46       $ 26,848         9       $ 4,867   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

24


The following table presents the amount of troubled debt restructurings by loan class, classified separately as those currently paying under restructured terms and those that have defaulted under restructured terms at March 31, 2013, December 31, 2012 and March 31, 2012:

 

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

Loan class:

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

Commercial, financial & agricultural

     5       $ 799         —         $ —     

Real estate – construction & development

     5         1,883         1         43   

Real estate – commercial & farmland

     16         8,878         3         3,595   

Real estate – residential

     26         6,953         3         1,111   

Consumer installment

     —           —           1         6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     52       $ 18,513         8       $ 4,755   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of December 31, 2012    Loans Currently  Paying
Under Restructured
Terms
     Loans that have Defaulted
Under Restructured
Terms
 

Loan class:

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

Commercial, financial & agricultural

     5       $ 802         —         $ —     

Real estate – construction & development

     5         1,735         —           —     

Real estate – commercial & farmland

     16         8,947         3         4,149   

Real estate – residential

     28         7,254         2         1,022   

Consumer installment

     —           —           1         6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     54       $ 18,738         6       $ 5,177   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of March 31, 2012    Loans Currently  Paying
Under Restructured
Terms
     Loans that have  Defaulted
Under Restructured
Terms
 

Loan class:

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

Real estate – construction & development

     7       $ 2,413         3       $ 518   

Real estate – commercial & farmland

     19         17,869         1         2,072   

Real estate – residential

     22         7,778         3         1,065   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     48       $ 28,060         7       $ 3,655   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

25


The following table presents the amount of troubled debt restructurings by types of concessions made, classified separately as accrual and non-accrual at March 31, 2013, December 31, 2012 and March 31, 2012:

 

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

Type of Concession:

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

Forbearance of Interest

     2       $ 1,843         —         $ —     

Forgiveness of Principal

     3         1,504         1         207   

Payment Modification Only

     2         376         —           —     

Rate Reduction Only

     10         7,033         2         182   

Rate Reduction, Forbearance of Interest

     17         4,046         2         3,100   

Rate Reduction, Forbearance of Principal

     18         3,711         1         255   

Rate Reduction, Payment Modification

     —           —           2         1,011   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     52       $ 18,513         8       $ 4,755   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of December 31, 2012    Accruing Loans      Non-Accruing Loans  

Type of Concession:

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

Forbearance of Interest

     2       $ 1,873         —         $ —     

Forgiveness of Principal

     3         1,518         1         372   

Payment Modification Only

     2         376         —           —     

Rate Reduction Only

     11         7,075         1         177   

Rate Reduction, Forbearance of Interest

     18         4,061         2         3,420   

Rate Reduction, Forbearance of Principal

     18         3,798         —           —     

Rate Reduction, Payment Modification

     1         43         1         1,202   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     55       $ 18,744         5       $ 5,171   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of March 31, 2012    Accruing Loans      Non-Accruing Loans  

Type of Concession:

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

Forbearance of Interest

     3       $ 2,275         —         $ —     

Forgiveness of Principal

     2         893         1         136   

Payment Modification Only

     2         5,202         1         307   

Rate Reduction Only

     10         6,541         4         1,140   

Rate Reduction, Forbearance of Interest

     12         8,360         1         103   

Rate Reduction, Forbearance of Principal

     16         3,514         1         1,109   

Rate Reduction, Payment Modification

     1         63         1         2,072   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     46       $ 26,848         9       $ 4,867   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

26


The following table presents the amount of troubled debt restructurings by collateral types, classified separately as accrual and non-accrual at March 31, 2013, December 31, 2012 and March 31, 2012:

 

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

Collateral type:

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

Warehouse

     3       $ 1,689         1       $ 176   

Raw Land

     1         1,285         1         43   

Hotel & Motel

     3         2,273         —           —     

Office

     4         2,095         1         2,450   

Retail, including Strip Centers

     6         2,821         1         969   

1-4 Family Residential

     30         7,550         3         1,111   

Life Insurance Policy

     1         250         —           —     

Automobile/Equipment/Inventory

     3         500         1         6   

Unsecured

     1         50         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     52       $ 18,513         8       $ 4,755   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of December 31, 2012    Accruing Loans      Non-Accruing Loans  

Collateral type:

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

Warehouse

     3       $ 1,692         1       $ 177   

Raw Land

     2         1,337         —           —     

Hotel & Motel

     3         2,318         —           —     

Office

     4         2,105         1         2,770   

Retail, including Strip Centers

     6         2,833         1         1,202   

1-4 Family Residential

     31         7,651         2         1,022   

Life Insurance Policy

     1         250         —           —     

Automobile/Equipment/Inventory

     4         508         —           —     

Unsecured

     1         50         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     55       $ 18,744         5       $ 5,171   
  

 

 

    

 

 

    

 

 

    

 

 

 
As of March 31, 2012    Accruing Loans      Non-Accruing Loans  

Collateral type:

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

Apartments

     1       $ 5,111         —         $ —     

Warehouse

     1         1,343         —           —     

Raw Land

     4         1,595         1         137   

Hotel & Motel

     3         2,449         1         2,072   

Office

     3         1,695         1         103   

Retail, including Strip Centers

     9         6,657         —           —     

1-4 Family Residential

     25         7,998         6         2,555   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     46       $ 26,848         9       $ 4,867   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of March 31, 2013, December 31, 2012 and March 31, 2012, the Company had a balance of $23.3 million, $23.9 million and $31.7 million, respectively, in troubled debt restructurings. The Company has recorded $2.6 million, $1.9 million and $2.3 million in previous charge-offs on such loans at March 31, 2013, December 31, 2012 and March 31, 2012, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $591,000, $640,000 and $3.2 million at March 31, 2013, December 31, 2012 and March 31, 2012, respectively. At March 31, 2013, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings

 

27


Allowance for Loan Losses

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

The Company has developed a methodology for determining the adequacy of the allowance for loan losses which is monitored by the Company’s Chief Credit Officer. Procedures provide for the assignment of a risk rating for every loan included in the total loan portfolio, with the exception of credit card receivables and overdraft protection loans which are treated as pools for risk rating purposes. The risk rating schedule provides nine ratings of which five ratings are classified as pass ratings and four ratings are classified as criticized ratings. Each risk rating is assigned a percentage factor to be applied to the loan balance to determine the adequate amount of reserve. Many of the larger loans require an annual review by an independent loan officer or an independent third party loan review firm. As a result of these loan reviews, certain loans may be assigned specific reserve allocations. Other loans that surface as problem loans may also be assigned specific reserves. Past due loans are assigned risk ratings based on the number of days past due. The calculation of the allowance for loan losses, including underlying data and assumptions, is reviewed regularly by the Company’s Chief Financial Officer and the Director of Internal Audit.

Loan losses are charged against the allowance when management believes the collection of a loan’s principal is unlikely. Subsequent recoveries are credited to the allowance. Consumer loans are charged-off in accordance with the Federal Financial Institutions Examination Council’s 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 three months ended March 31, 2013, the year ended December 31, 2012 and the three months ended March 31, 2012, the Company recorded provision for loan loss expense of $320,000, $2.6 million and $282,000, respectively, to account for losses where the initial estimate of cash flows was found to be excessive on loans acquired in FDIC-assisted transactions. These amounts are excluded from the rollforwards above and below but are reflected in the Company’s Consolidated Statements of Earnings.

 

28


The following table details activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2013, the year ended December 31, 2012 and the three months ended March 31, 2012. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

 

     Commercial,
financial &
agricultural
    Real estate -
construction &
development
    Real estate -
commercial &
farmland
    Real estate -
residential
    Consumer
installment
loans and
Other
    Total  
     (Dollars in thousands)  

Balance, January 1, 2013

   $ 2,439      $ 5,343      $ 9,157      $ 5,898      $ 756      $ 23,593   

Provision for loan losses

     254        1,467        696        339        (153     2,603   

Loans charged off

     (410     (655     (1,025     (779     (167     (3,036

Recoveries of loans previously charged off

     84        2        3        85        48        222   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2013

   $ 2,367      $ 6,157      $ 8,831      $ 5,543      $ 484      $ 23,382   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period-end amount allocated to:

            

Loans individually evaluated for impairment

   $ 675      $ 641      $ 1,890      $ 1,203      $ —        $ 4,409   

Loans collectively evaluated for impairment

     1,692        5,516        6,941        4,340        484        18,973   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 2,367      $ 6,157      $ 8,831      $ 5,543      $ 484      $ 23,382   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

            

Individually evaluated for impairment

   $ 3,334      $ 8,281      $ 19,545      $ 14,069      $ —        $ 45,229   

Collectively evaluated for impairment

     177,554        121,880        746,682        341,647        59,761        1,447,524   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 180,888      $ 130,161      $ 766,227      $ 355,716      $ 59,761      $ 1,492,753   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Commercial,
financial &
agricultural
    Real estate -
construction &
development
    Real estate -
commercial &
farmland
    Real estate -
residential
    Consumer
installment
loans and
Other
    Total  
     (Dollars in thousands)  

Balance, January 1, 2012

   $ 2,918      $ 9,438      $ 14,226      $ 8,128      $ 446      $ 35,156   

Provision for loan losses

     815        5,245        15,000        6,267        1,124        28,451   

Loans charged off

     (1,451     (9,380     (20,551     (8,722     (1,059     (41,163

Recoveries of loans previously charged off

     157        40        482        225        245        1,149   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2012

   $ 2,439      $ 5,343      $ 9,157      $ 5,898      $ 756      $ 23,593   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period-end amount allocated to:

            

Loans individually evaluated for impairment

   $ 659      $ 611      $ 2,228      $ 1,056      $ —        $ 4,554   

Loans collectively evaluated for impairment

     1,780        4,732        6,929        4,842        756        19,039   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 2,439      $ 5,343      $ 9,157      $ 5,898      $ 756      $ 23,593   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

            

Individually evaluated for impairment

   $ 3,351      $ 7,617      $ 21,332      $ 13,020      $ —        $ 45,320   

Collectively evaluated for impairment

     170,866        106,582        710,990        333,460        83,417        1,405,315   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 174,217      $ 114,199      $ 732,322      $ 346,480      $ 83,417      $ 1,450,635   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


     Commercial,
financial &
agricultural
    Real estate -
construction &
development
    Real estate -
commercial &
farmland
    Real estate -
residential
    Consumer
installment
loans and
Other
    Total  
     (Dollars in thousands)  

Balance, January 1, 2012

   $ 2,918      $ 9,438      $ 14,226      $ 8,128      $ 446      $ 35,156   

Provision for loan losses

     (693     1,967        8,585        2,002        739        12,600   

Loans charged off

     (155     (3,930     (12,964     (2,123     (165     (19,337

Recoveries of loans previously charged off

     48        17        16        141        48        270   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2012

   $ 2,118      $ 7,492      $ 9,863      $ 8,148      $ 1,068      $ 28,689   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period-end amount allocated to:

            

Loans individually evaluated for impairment

   $ 827      $ 1,450      $ 3,421      $ 2,659      $ 3      $ 8,360   

Loans collectively evaluated for impairment

     1,291        6,042        6,442        5,489        1,065        20,329   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 2,118      $ 7,492      $ 9,863      $ 8,148      $ 1,068      $ 28,689   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

            

Individually evaluated for impairment

   $ 3,220      $ 8,980      $ 35,971      $ 17,098      $ 17      $ 65,286   

Collectively evaluated for impairment

     146,100        113,351        622,083        310,955        66,069        1,258,558   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 149,320      $ 122,331      $ 658,054      $ 328,053      $ 66,086      $ 1,323,844   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


NOTE 4 – ASSETS ACQUIRED IN FDIC-ASSISTED ACQUISITIONS

From October 2009 through July 2012, the Company participated in ten FDIC-assisted acquisitions whereby the Company purchased certain failed institutions out of the FDIC’s receivership. These institutions include:

 

Bank Acquired

   Location    Branches    Date Acquired

American United Bank (“AUB”)

   Lawrenceville, Ga.    1    October 23, 2009

United Security Bank (“USB”)

   Sparta, Ga.    2    November 6, 2009

Satilla Community Bank (“SCB”)

   St. Marys, Ga.    1    May 14, 2010

First Bank of Jacksonville (“FBJ”)

   Jacksonville, Fl.    2    October 22, 2010

Tifton Banking Company (“TBC”)

   Tifton, Ga.    1    November 12, 2010

Darby Bank & Trust (“DBT”)

   Vidalia, Ga.    7    November 12, 2010

High Trust Bank (“HTB”)

   Stockbridge, Ga.    2    July 15, 2011

One Georgia Bank (“OGB”)

   Midtown Atlanta, Ga.    1    July 15, 2011

Central Bank of Georgia (“CBG”)

   Ellaville, Ga.    5    February 24, 2012

Montgomery Bank & Trust (“MBT”)

   Ailey, Ga.    2    July 6, 2012

The determination of the initial fair values of loans at the acquisition date and the initial fair values of the related FDIC indemnification assets involves a high degree of judgment and complexity. The carrying values of the acquired loans and the FDIC indemnification assets reflect management’s best estimate of the fair value of each of these assets as of the date of acquisition. However, the amount that the Company realizes on these assets could differ materially from the carrying values reflected in the financial statements included in this report, based upon the timing and amount of collections on the acquired loans in future periods. Because of the loss-sharing agreements with the FDIC on these assets, the Company does not expect to incur any significant losses. To the extent the actual values realized for the acquired loans are different from the estimates, the indemnification assets will generally be affected in an offsetting manner due to the loss-sharing support from the FDIC.

FASB ASC 310 – 30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310”), applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. ASC 310 prohibits carrying over or creating an allowance for loan losses upon initial recognition for loans which fall under the scope of this statement. At the acquisition dates, a majority of these loans were valued based on the liquidation value of the underlying collateral because the future cash flows are primarily based on the liquidation of underlying collateral. There was no allowance for credit losses established related to these ASC 310 loans at the acquisition dates, based on the provisions of this statement. Over the life of the acquired loans, the Company continues to estimate cash flows expected to be collected. If the expected cash flows expected to be collected increases, then the Company adjusts the amount of accretable discount recognized on a prospective basis over the loan’s remaining life. If the expected cash flows expected to be collected decreases, then the Company records a provision for loan loss in its Consolidated Statement of Operations.

 

31


The following table summarizes components of all covered assets at March 31, 2013, December 31, 2012 and March 31, 2012 and their origin:

 

    Covered loans     Less: Credit
risk
adjustments
    Less:
Liquidity
and rate
adjustments
    Total
covered
loans
    OREO     Less: Fair
value
adjustments
    Total
covered
OREO
    Total
covered
assets
    FDIC
indemnification
asset
 

As of March 31, 2013:

  (Dollars in thousands)  

AUB

  $ 25,001      $ 2,508      $ —        $ 22,493      $ 8,079      $ 100      $ 7,979      $ 30,472      $ 4,176   

USB

    25,921        3,879        —          22,042        5,379        139        5,240        27,282        9,932   

SCB

    40,008        3,189        —          36,819        6,670        299        6,371        43,190        8,189   

FBJ

    31,479        5,662        11        25,806        1,450        93        1,357        27,163        6,840   

DBT

    146,178        35,461        83        110,634        25,990        1,895        24,095        134,729        37,333   

TBC

    42,302        4,450        133        37,719        10,478        1,814        8,664        46,383        8,050   

HTB

    82,202        14,068        49        68,085        14,823        3,445        11,378        79,463        21,423   

OGB

    73,279        14,877        127        58,275        10,384        4,144        6,240        64,515        18,687   

CBG

    109,596        30,605        140        78,851        8,424        1,833        6,591        85,442        46,349   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 575,966      $ 114,699      $ 543      $ 460,724      $ 91,677      $ 13,762      $ 77,915      $ 538,639      $ 160,979   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Covered loans     Less: Credit
risk
adjustments
    Less:
Liquidity
and rate
adjustments
    Total
covered
loans
    OREO     Less: Fair
value
adjustments
    Total
covered
OREO
    Total
covered
assets
    FDIC
indemnification
asset
 

As of December 31, 2012:

  (Dollars in thousands)  

AUB

  $ 27,169      $ 2,481      $ —        $ 24,688      $ 10,636      $ 102      $ 10,534      $ 35,222      $ 2,905   

USB

    27,286        4,320        —          22,966        7,087        99        6,988        29,954        6,619   

SCB

    41,389        3,285        —          38,104        10,686        654        10,032        48,136        6,133   

FBJ

    32,574        6,204        27        26,343        3,260        526        2,734        29,077        6,589   

DBT

    169,527        41,631        207        127,689        30,395        2,160        28,235        155,924        47,012   

TBC

    46,796        4,979        173        41,644        11,089        1,381        9,708        51,352        8,073   

HTB

    90,602        16,072        52        74,478        13,980        4,954        9,026        83,504        20,020   

OGB

    81,908        17,127        136        64,645        9,168        4,078        5,090        69,735        16,871   

CBG

    124,200        36,884        161        87,155        9,046        3,120        5,926        93,081        45,502   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 641,451      $ 132,983      $ 756      $ 507,712      $ 105,347      $ 17,074      $ 88,273      $ 595,985      $ 159,724   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32


    Covered loans     Less: Credit
risk
adjustments
    Less:
Liquidity
and rate
adjustments
    Total
covered
loans
    OREO     Less: Fair
value
adjustments
    Total
covered
OREO
    Total
covered
assets
    FDIC
indemnification
asset
 

As of March 31, 2012:

  (Dollars in thousands)  

AUB

  $ 33,063      $ 2,672      $ —        $ 30,391      $ 11,842      $ —        $ 11,842      $ 42,233      $ 2,648   

USB

    48,017        5,083        —          42,934        8,401        50        8,351        51,285        6,621   

SCB

    53,643        5,628        52        47,963        10,833        405        10,428        58,391        7,660   

FBJ

    38,116        6,994        76        31,046        2,674        534        2,140        33,186        7,540   

DBT

    245,117        64,530        579        180,008        28,759        2,253        26,506        206,514        65,932   

TBC

    74,893        14,052        292        60,549        6,678        880        5,798        66,347        18,166   

HTB

    106,730        23,637        73        83,020        17,755        8,055        9,700        92,720        29,997   

OGB

    96,271        27,105        190        68,976        12,049        7,037        5,012        73,988        30,126   

CBG

    164,541        55,830        221        108,490        13,792        7,766        6,026        114,516        51,326   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 860,391      $ 205,531      $ 1,483      $ 653,377      $ 112,783      $ 26,980      $ 85,803      $ 739,180      $ 220,016   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


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 continue reflecting the assets at fair value. The adjustments to fair value are performed on a loan-by-loan basis and have resulted in the following:

 

Total Amounts

     March 31,  
2013
     December 31,
2012
       March 31,  
2012
 
     (Dollars in thousands)  

Adjustments needed where the Company’s initial estimate of cash flows were underestimated: (recorded with a reclassification from non-accretable difference to accretable discount)

   $ 4,052       $ 23,050       $ 2,818  

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

     1,600         13,190         1,410  

Amounts reflected in the Company’s Statement of Earnings

   March 31,
2013
     December 31,
2012
     March 31,
2012
 
     (Dollars in thousands)  

Adjustments needed where the Company’s initial estimate of cash flows were underestimated: (recorded with a reclassification from non-accretable difference to accretable discount)

   $ 810       $ 4,610       $ 564  

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

     320         2,638         282  

A rollforward of acquired loans with deterioration of credit quality for the three months ended March 31, 2013, the year ended December 31, 2012 and the three months ended March 31, 2012 is shown below:

 

(Dollars in Thousands)

     March 31,  
2013
    December 31,
2012
      March 31,  
2012
 

Balance, January 1

   $ 282,737      $ 307,790      $ 307,790   

Change in estimate of cash flows, net of charge-offs or recoveries

     (5,391     (17,712     (3,388

Additions due to acquisitions

     —          73,414        73,414   

Other (loan payments, transfers, etc.)

     (22,279     (80,755     (9,451
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 255,067      $ 282,737      $ 368,365   
  

 

 

   

 

 

   

 

 

 

A rollforward of acquired loans without deterioration of credit quality for the three months ended March 31, 2013, the year ended December 31, 2012 and the three months ended March 31, 2012 is shown below:

 

(Dollars in Thousands)

     March 31,  
2013
    December 31,
2012
      March 31,  
2012
 

Balance, January 1

   $ 228,602      $ 266,966      $ 266,966   

Change in estimate of cash flows, net of charge-offs or recoveries

     (2,625     1,376        222   

Additions due to acquisitions

     —          51,368        51,367   

Other (loan payments, transfers, etc.)

     (20,229     (91,108     (19,684
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 205,748      $ 228,602      $ 298,871   
  

 

 

   

 

 

   

 

 

 

 

34


The following is a summary of changes in the accretable discounts of acquired loans during the three months ended March 31, 2013, the year ended December 31, 2012 and the three months ended March 31, 2012:

 

(Dollars in Thousands)

     March 31,  
2013
    December 31,
2012
      March 31,  
2012
 

Balance, January 1

   $ 16,698      $ 29,537      $ 29,537   

Additions due to acquisitions

     —          9,863        9,863   

Accretion

     (7,218     (45,752     (12,051

Other activity, net

     4,052        23,050        2,818   
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 13,532      $ 16,698      $ 30,167   
  

 

 

   

 

 

   

 

 

 

The shared-loss agreements are subject to the servicing procedures as specified in the agreement with the FDIC. The expected reimbursements under the shared-loss agreements were recorded as an indemnification asset at their estimated fair values on the acquisition dates. Changes in the FDIC shared-loss receivable for the three months ended March 31, 2013, for the year ended December 31, 2012 and for the three months ended March 31, 2012 are as follows:

 

(Dollars in Thousands)

     March 31,  
2013
    December 31,
2012
      March 31,  
2012
 

Balance, January 1

   $ 159,724      $ 242,394      $ 242,394   

Indemnification asset recorded in acquisitions

     —          52,654        52,654   

Payments received from FDIC

     (6,324     (128,730     (71,169

Effect of change in expected cash flows on covered assets

     7,579        (6,594     (3,863
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 160,979      $ 159,724      $ 220,016   
  

 

 

   

 

 

   

 

 

 

NOTE 5 – WEIGHTED AVERAGE SHARES OUTSTANDING

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

 

     For the  Three
Months
    Ended March 31,    
 
     2013      2012  
     (share data in
thousands)
 

Basic shares outstanding

     23,868         23,762   

Plus: Dilutive effect of ISOs

     63         105   

Plus: Dilutive effect of Restricted Grants

     315         49   
  

 

 

    

 

 

 

Diluted shares outstanding

     24,246         23,916   
  

 

 

    

 

 

 

For the quarter ended March 31, 2013 and 2012, the Company has excluded 408,000 and 476,000, respectively, potential common shares with strike prices that would cause them to be anti-dilutive.

NOTE 6 – OTHER BORROWINGS

The Company has, from time to time, utilized certain borrowing arrangements with various financial institutions to fund growth in earning assets or provide additional liquidity when appropriate spreads can be realized. At March 31, 2013 and December 31, 2012, there were no outstanding borrowings with the Company’s correspondent banks. At March 31, 2012, there were $3.8 million outstanding borrowings with the Company’s correspondent banks. The Company’s success with attracting and retaining retail deposits has allowed for very low dependence on more volatile non-deposit funding.

 

35


NOTE 7 – COMMITMENTS AND CONTINGENCIES

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

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

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

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

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

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

 

(Dollars in Thousands)

   March 31, 2013      December 31, 2012      March 31, 2012  

Commitments to extend credit

   $ 190,813       $ 180,733       $ 156,330   

Standby letters of credit

   $ 6,747       $ 6,788       $ 8,349   

NOTE 8 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income for the Company consists of changes in net unrealized gains and losses on investment securities available for sale and interest rate swap derivatives. The following tables present a summary of the accumulated other comprehensive income balances, net of tax, as of March 31, 2013 and 2012.

 

(Dollars in Thousands)

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

Balance, January 1, 2012

  $ 856      $ 6,440      $ 7,296   

Current year changes

    (94     (689     (783
 

 

 

   

 

 

   

 

 

 

Balance, March 31, 2012

  $ 762      $ 5,751      $ 6,513   
 

 

 

   

 

 

   

 

 

 

 

(Dollars in Thousands)

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

Balance, January 1, 2013

  $ (23   $ 6,630      $ 6,607   

Reclassification for gains included in net income

    —          (112     (112

Current year changes

    208        (429     (221
 

 

 

   

 

 

   

 

 

 

Balance, March 31, 2013

  $ 185      $ 6,089      $ 6,274   
 

 

 

   

 

 

   

 

 

 

 

36


NOTE 9 – SUBSEQUENT EVENT

On May 2, 2013, the Company announced the signing of a definitive merger agreement under which the Company will acquire The Prosperity Banking Company (“Prosperity”), the parent company of Prosperity Bank. Upon completion of the holding company merger, Prosperity Bank will be merged with and into Ameris Bank. Prosperity currently operates 12 banking locations in Bay, Duval, Flagler, Putnam, St. Johns and Volusia counties, Florida. As of December 31, 2012, Prosperity reported assets of $742 million, loans of $464 million and deposits of $478 million.

Under the terms of the merger agreement, Prosperity shareholders will have the option to elect to receive either 3.125 shares of Ameris common stock or $41.50 in cash for each share of Prosperity common stock, subject to the requirement that no more than 50% of the overall consideration will be in the form of cash. The transaction is expected to close in the third quarter of 2013 and is subject to customary closing conditions, regulatory approvals and approval by the shareholders of Prosperity.

Assuming that all consideration is paid with shares of Ameris common stock, based on the closing price of the Company’s common stock on May 1, 2013, the transaction would be valued at approximately $15.7 million and represents 89% of Prosperity’s tangible book value as of December 31, 2012. The purchase price will be allocated to the assets purchased as appropriate with the remaining amounts being reported as goodwill. The Company will not be able to make the remaining disclosures required by purchase accounting standards until the transaction closes.

 

37


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

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

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

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

 

38


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

 

     2013     2012  
(in thousands, except share data, taxable equivalent)    First
Quarter
    Fourth
Quarter
    Third
Quarter
    Second
Quarter
    First
Quarter
 

Results of Operations:

          

Net interest income

   $ 28,338      $ 29,559      $ 28,238      $ 28,881      $ 27,727   

Net interest income (tax equivalent)

     28,695        29,898        28,420        29,058        27,655   

Provision for loan losses

     2,923        4,442        6,540        7,225        12,882   

Non-interest income

     11,360        11,904        9,831        8,875        27,264   

Non-interest expense

     28,884        29,791        28,810        26,623        34,246   

Income tax expense

     2,606        2,558        816        1,413        2,498   

Preferred stock dividends

     441        1,118        827        817        815   

Net income available to common Shareholders

     4,844        3,554        1,076        1,678        4,550   

Selected Average Balances:

          

Loans, net of unearned income

   $ 1,488,326      $ 1,471,065      $ 1,430,227      $ 1,378,448      $ 1,329,146   

Covered loans

     491,691        519,892        574,897        601,802        602,353   

Investment securities

     340,564        352,790        364,786        370,928        356,112   

Earning assets

     2,428,720        2,503,381        2,502,908        2,505,744        2,482,070   

Assets

     2,875,274        2,985,116        2,935,715        2,966,527        2,978,469   

Deposits

     2,511,511        2,604,320        2,616,866        2,591,607        2,589,978   

Common shareholders’ equity

     251,214        240,787        242,614        243,463        242,817   

Period-End Balances:

          

Loans, net of unearned income

   $ 1,492,753      $ 1,450,635      $ 1,439,862      $ 1,365,489      $ 1,323,844   

Covered loans

     460,724        507,712        546,234        601,737        653,377   

Earning assets

     2,401,043        2,547,719        2,443,040        2,465,116        2,558,047   

Total assets

     2,861,651        3,019,052        2,949,383        2,920,311        3,043,234   

Deposits

     2,489,973        2,624,663        2,580,117        2,544,672        2,665,360   

Common shareholders’ equity

     255,969        251,355        247,999        249,895        246,813   

Per Common Share Data:

          

Earnings per share – Basic

   $ 0.20      $ 0.15      $ 0.05      $ 0.07      $ 0.19   

Earnings per share – Diluted

     0.20        0.15        0.04        0.07        0.19   

Common book value per share

     10.72        10.56        10.41        10.49        10.36   

End of period shares outstanding

     23,875,680        23,799,768        23,819,144        23,819,144        23,814,144   

Weighted average shares outstanding

          

Basic

     23,867,691        23,815,583        23,819,144        23,818,814        23,762,196   

Diluted

     24,246,346        23,857,095        23,973,369        23,973,039        23,916,421   

Market Data:

          

High closing price

   $ 14.51      $ 12.71      $ 12.88      $ 13.40      $ 13.32   

Low closing price

     12.79        10.50        11.27        10.88        10.34   

Closing price for quarter

     14.35        12.49        12.59        12.60        13.14   

Average daily trading volume

     51,887        48,295        45,543        58,370        59,139   

Cash dividends per share

     —         —         —         —         —    

Stock dividend

     —         —         —         —         —    

Price to earnings

     17.94        20.82        78.69        45.00        17.29   

Closing price to book value

     1.34        1.18        1.21        1.20        1.27   

Performance Ratios:

          

Return on average assets

     0.75     0.62     0.26     0.34     0.72

Return on average common equity

     8.53     7.72     3.12     4.12     8.89

Average loan to average deposits

     78.84     76.45     76.62     76.41     74.58

Average equity to average assets

     9.70     9.39     10.01     9.93     9.86

Net interest margin (tax equivalent)

     4.79     4.75     4.52     4.66     4.48

Efficiency ratio (tax equivalent)

     72.76     71.85     75.68     70.51     62.28

 

39


Overview

The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of March 31, 2013, as compared to December 31, 2012, and operating results for the three month periods ended March 31, 2013 and 2012. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

Results of Operations for the Three Months Ended March 31, 2013

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $4.8 million, or $0.20 per diluted share, for the quarter ended March 31, 2013, compared to $4.6 million, or $0.19 per diluted share, for the same quarter in 2012. The Company’s return on average assets and average stockholders’ equity in the first quarter of 2013 was 0.75% and 8.53%, respectively, compared to 0.72% and 8.89%, respectively, in the first quarter of 2012. The Company’s mortgage banking activities have had a significant impact on the overall financial results of the Company. Below is a more detailed analysis of the retail banking activities and mortgage banking activities of the Company.

 

     Retail Banking      Mortgage Banking      Total  
     (in thousands)  

As of March 31, 2013:

        

Net interest income

   $ 27,766       $ 572       $ 28,338   

Provision for loan losses

     2,923         —           2,923   

Non-interest income

     6,896         4,461         11,360   

Non-interest expense

        

Salaries and employee benefits

     11,037         2,769         13,806   

Occupancy

     2,765         166         2,931   

Data Processing

     2,471         99         2,570   

Other expenses

     8,890         687         9,577   
  

 

 

    

 

 

    

 

 

 

Total non-interest expense

     25,163         3,721         28,884   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

     6,576         1,315         7,891   

Income tax expense

     2,146         460         2,606   

Net income

     4,430         855         5,285   

Preferred stock dividends

     441         —           441   
  

 

 

    

 

 

    

 

 

 

Net income available to common Shareholders

   $ 3,989       $ 855       $ 4,844   
  

 

 

    

 

 

    

 

 

 
     Retail Banking      Mortgage Banking      Total  
     (in thousands)  

As of March 31, 2012:

        

Net interest income

   $ 27,586       $ 141       $ 27,727   

Provision for loan losses

     128823         —           12,882   

Non-interest income

     25,789         1,475         27,264   

Non-interest expense

        

Salaries and employee benefits

     10,262         1,184         11,446   

Occupancy

     3,253         82         3,335   

Data Processing

     1,880         45         1,925   

Other expenses

     17,368         172         17,540   
  

 

 

    

 

 

    

 

 

 

Total non-interest expense

     32,763         1,483         34,246   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

     7,730         133         7,863   

Income tax expense

     2,451         47         2,498   

Net income

     5,279         86         5,365   

Preferred stock dividends

     815         —           815   
  

 

 

    

 

 

    

 

 

 

Net income available to common Shareholders

   $ 4,464       $ 86       $ 4,550   
  

 

 

    

 

 

    

 

 

 

 

40


Net Interest Income and Margins

On a tax equivalent basis, net interest income for the first quarter of 2013 was $28.7 million, an increase of $1.0 million compared to the same quarter in 2012. Significant increases in the Company’s net interest margin have been the result of flat yields on all classes of earning assets complemented by steady decreases in the Company’s cost of funds. The Company’s net interest margin increased during the first quarter of 2013 to 4.79%, compared to 4.48% during the first quarter of 2012. Steady improvements in the earning asset mix and decreased funding costs have positively impacted the Company’s net interest margin over the past year.

Total interest income, on a tax equivalent basis, during the first quarter of 2013 was $31.2 million compared to $32.3 million in the same quarter of 2012. Yields on earning assets fell slightly to 5.21%, compared to 5.22% reported in the first quarter of 2012. During the first quarter of 2013, loans comprised 81.5% of earning assets, compared to 77.8% in the same quarter of 2012. Increased lending activities have provided opportunities to begin to grow the legacy loan portfolio. Yields on legacy loans increased slightly to 5.58% in the first quarter of 2013, compared to 5.57% in the same period of 2012. Covered loan yields declined from 7.33% in the first quarter of 2012 to 7.23% in the first quarter of 2013. Management anticipates improving economic conditions and increased loan demand will provide opportunities to invest a portion of the short-term assets at higher yields.

Total funding costs declined to 0.40% in the first quarter of 2013, compared to 0.69% during the first quarter of 2012. Deposit costs decreased from 0.63% in the first quarter of 2012 to 0.36% in the first quarter of 2013. Ongoing efforts to maintain the percentage of funding from transaction deposits have succeeded such that non-CD deposits averaged 72.1% of total deposits in the first quarter of 2013, compared to 66.0% during the first quarter of 2012. Lower costs on deposits were realized due mostly to the lower rate environment and the Company’s ability to be less competitive on higher priced CDs due to its larger than normal position in short-term assets. Further opportunity to realize savings on deposits exists but may be limited due to current costs. Average balances of interest bearing deposits and their respective costs for the first quarter of 2013 and 2012 are shown below:

 

     March 31, 2013     March 31, 2012  
(Dollars in Thousands)    Average
Balance
     Average
Cost
    Average
Balance
     Average
Cost
 

NOW

   $ 633,313         0.19   $ 619,047         0.34

MMDA

     592,842         0.36     598,956         0.56

Savings

     102,380         0.11     87,219         0.16

Retail CDs < $100,000

     313,191         0.64     373,519         1.01

Retail CDs > $100,000

     368,577         0.78     444,838         1.12

Brokered CDs

     19,448         3.52     61,287         3.29
  

 

 

    

 

 

   

 

 

    

 

 

 

Interest bearing deposits

   $ 2,029,751         0.44   $ 2,184,866         0.75
  

 

 

      

 

 

    

Provision for Loan Losses and Credit Quality

The Company’s provision for loan losses during the first quarter of 2013 amounted to $2.9 million, compared to $4.4 million in the fourth quarter of 2012 and to $12.9 million in the first quarter of 2012. Although the Company has experienced improving trends in criticized and classified assets for several quarters, provision for loan losses has still been required to account for continued devaluation of real estate collateral. At March 31, 2013, classified loans still accruing totaled $28.6 million, compared to $32.4 million at March 31, 2012. Non-covered non-accrual loans at March 31, 2013 totaled $37.5 million, a 28.3% decrease from $52.3 million reported at the end of the first quarter of 2012.

At March 31, 2013, OREO (excluding covered OREO) totaled $40.4 million, compared to $36.4 million at March 31, 2012. Management regularly assesses the valuation of OREO through periodic reappraisal and through inquiries received in the marketing process. The Company has found that with a marketing window of 3-6 months, the liquidation of properties varies from 85% to 100% of current book value. Certain properties, mostly raw land and subdivision lots, have extended marketing periods because of excessive inventory and record low home building activity. At the end of the first quarter of 2013, total non-covered non-performing assets decreased to 2.72% of total assets compared to 2.91% at March 31, 2012. Management continues to aggressively identify and resolve problem assets while seeking quality credits to grow the loan portfolio.

Net charge-offs on loans during the first quarter of 2013 decreased to $2.8 million, or 0.76% of loans on an annualized basis, compared to $19.1 million, or 5.79% of loans, in the first quarter of 2012. The increased level of charge-offs in the first quarter of 2012 relates to the Company’s bulk sale of non-performing loans during that quarter. Excluding amounts charged-off in the bulk sale, the Company’s net charge-offs would have been $8.7 million, or 2.65% of loans on an annualized basis for the first quarter of 2012. The Company’s allowance for loan losses at March 31, 2013 was $23.4 million, or 1.57% of total loans, compared to $28.7 million, or 2.17% of total loans, at March 31, 2012.

 

41


Non-interest Income

Total non-interest income for the first quarter of 2013 was $11.4 million, compared to $27.3 million in the first quarter of 2012. The Company recorded a $20.0 million gain on acquisition in the first quarter of 2012. Excluding the gain on acquisition, non-interest income increased $4.1 million, or 57.2%, in the first quarter of 2013, compared to the first quarter of 2012. Income from mortgage related activities continued to increase as a result of the Company’s increased number of mortgage bankers and higher level of productions. Service charges on deposit accounts in the first quarter of 2013 increased to $4.8 million, compared to $4.4 million in the first quarter of 2012. This increase was driven by higher balances in accounts subject to service charges and continued growth of core accounts through the Company’s FDIC-assisted acquisition strategy.

Non-interest Expense

Total non-interest expense for the first quarter of 2013 decreased to $28.9 million, compared to $34.2 million at the same time in 2012. Salaries and employee benefits increased from $11.4 million in the first quarter of 2012 to $13.8 million in the first quarter of 2013. The majority of the increase is due to the reinstatement of foregone compensation (including incentive accruals and board fees) during 2012. Occupancy and equipment expense decreased during the quarter from $3.3 million in the first quarter of 2012 to $2.9 million in the first quarter of 2013. Total data processing and telecommunications expense in the first quarter of 2013 was $2.6 million, compared to $1.9 million in the first quarter of 2012. Credit related expenses in the first quarter of 2013 totaled $4.8 million, compared to $12.7 million in the first quarter of 2012. The elevated credit costs in the first quarter of 2012 related to the Company’s bulk sale of problem assets during that quarter.

Income taxes

Income tax expense is influenced by the amount of taxable income, the amount of tax-exempt income and the amount of non-deductible expenses. For the first quarter of 2013, the Company reported income tax expense of $2.6 million, compared to $2.5 million in the same period of 2012. The Company’s effective tax rate for the three months ended March 31, 2013 and 2012 was 33.0% and 31.8%, respectively.

Balance Sheet Comparison

Securities

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

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

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

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Substantially all of the unrealized losses on debt securities are related to changes in interest rates and do not affect the expected cash flows of the issuer or underlying collateral. All unrealized losses are considered temporary because each security carries an acceptable investment grade and the Company does not intend to sell these investment securities at an unrealized loss position at March 31, 2013, 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 March 31, 2013, these investments are not considered impaired on an other-than temporary basis.

 

42


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

 

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

March 31, 2013:

             

U.S. government agencies

   $ 5,000       $ 5,015         1.50     0.82       $ 5,000   

State, county and municipal securities

   $ 110,628       $ 115,532         3.77     5.75       $ 8,698   

Corporate debt securities

   $ 10,542       $ 10,297         6.63     7.42       $ —     

Mortgage-backed securities

   $ 188,492       $ 193,185         2.44     3.41       $ 42,921   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

   $ 314,662       $ 324,029         3.04     4.33       $ 56,619   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

March 31, 2012:

             

U.S. government agencies

   $ 28,634       $ 28,848         1.55     1.42       $ 18,000   

State, county and municipal securities

   $ 78,440       $ 81,997         4.59     6.04       $ 6,017   

Corporate debt securities

   $ 11,639       $ 11,385         6.80     7.20       $ 1,350   

Mortgage-backed securities

   $ 244,232       $ 249,561         2.88     2.82       $ 75,992   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

   $ 362,945       $ 371,791         3.28     3.54       $ 101,359   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Loans and Allowance for Loan Losses

At March 31, 2013, gross loans outstanding (including covered loans and mortgage loans held for sale) were $2.00 billion, a slight increase compared to the $1.99 billion reported at December 31, 2012. Mortgage loans held for sale decreased from $48.8 million at December 31, 2012 to $42.3 million at March 31, 2013. Other non-covered loans increased $42.1 million, from $1.45 billion at December 31, 2012 to $1.49 billion at March 31, 2013. Covered loans decreased $47.0 million, from $507.7 million at December 31, 2012 to $460.7 million at March 31, 2013.

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

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

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

 

43


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

For the three month period ended March 31, 2013, the Company recorded net charge-offs totaling $2.8 million, compared to $19.1 million for the period ended March 31, 2012. The provision for loan losses for the three months ended March 31, 2013 decreased to $2.6 million, compared to $12.6 million during the three month period ended March 31, 2012. Increased levels of charge-offs and provision expense in the first quarter of 2012 relates almost entirely to the Company’s bulk sale of non-performing loans during that quarter. At the end of the first quarter of 2013, the allowance for loan losses totaled $23.4 million, or 1.57% of total loans, compared to $23.6 million, or 1.63% of total loans, at December 31, 2012 and $28.7 million, or 2.17% of total loans, at March 31, 2012.

The following table presents an analysis of the allowance for loan losses for the three month periods ended March 31, 2013 and March 31, 2012:

 

(Dollars in Thousands)

   March 31,
2013
    March 31,
2012
 

Balance of allowance for loan losses at beginning of period

   $ 23,593      $ 35,156   

Provision charged to operating expense

     2,603        12,600   

Charge-offs:

    

Commercial, financial and agricultural

     410        155   

Real estate – residential

     779        2,123   

Real estate – commercial and farmland

     1,025        12,964   

Real estate – construction and development

     655        3,930   

Consumer installment

     167        165   

Other

     —          —     
  

 

 

   

 

 

 

Total charge-offs

     3,036        19,337   
  

 

 

   

 

 

 

Recoveries:

    

Commercial, financial and agricultural

     84        48   

Real estate – residential

     85        141   

Real estate – commercial and farmland

     3        16   

Real estate – construction and development

     2        17   

Consumer installment

     48        48   

Other

     —          —     
  

 

 

   

 

 

 

Total recoveries

     222        270   
  

 

 

   

 

 

 

Net charge-offs

     2,814        19,067   
  

 

 

   

 

 

 

Balance of allowance for loan losses at end of period

   $ 23,382      $ 28,689   
  

 

 

   

 

 

 

Net annualized charge-offs as a percentage of average loans

     0.76     5.79

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

     1.57     2.17

Assets Covered by Loss-Sharing Agreements with the FDIC

Loans that were acquired in FDIC-assisted transactions that are covered by the loss-sharing agreements with the FDIC (“covered loans”) totaled $460.7 million, $507.7 million and $653.4 million at March 31, 2013, December 31, 2012 and March 31, 2012, respectively. OREO that is covered by the loss- sharing agreements with the FDIC totaled $77.9 million, $88.3 million and $85.8 million at March 31, 2013, December 31, 2012 and March 31, 2012, respectively. The loss-sharing agreements are subject to the servicing procedures as specified in the agreements with the FDIC. The expected reimbursements under the loss-sharing agreements were recorded as an indemnification asset at their estimated fair value on the acquisition dates. The FDIC loss-share receivable reported at March 31, 2013, December 31, 2012 and March 31, 2012 was $161.0 million, $159.7 million and $220.0 million, respectively.

 

44


The Company recorded the loans at their fair values, taking into consideration certain credit quality, risk and liquidity marks. The Company is confident in its estimation of credit risk and its adjustments to the carrying balances of the acquired loans. If the Company determines that a loan or group of loans has deteriorated from its initial assessment of fair value, a reserve for loan losses will be established to account for that difference. During the three months ended March 31, 2013, the year ended December 31, 2012 and the three months ended March 31, 2012, the Company recorded provision for loan loss expense of $320,000, $2.6 million and $282,000, respectively, to account for losses where the initial estimate of cash flows was found to be excessive on loans acquired in FDIC-assisted transactions. If the Company determines that a loan or group of loans has improved from its initial assessment of fair value, the increase in cash flows over those expected at the acquisition date is recognized as interest income prospectively.

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

 

(Dollars in Thousands)

   March 31,
2013
     December 31,
2012
     March 31,
2012
 

Commercial, financial and agricultural

   $ 28,568       $ 32,606       $ 43,157   

Real estate – construction and development

     57,114         70,184         93,430   

Real estate – commercial and farmland

     260,159         278,506         350,244   

Real estate – residential

     113,668         125,056         162,768   

Consumer installment

     1,215         1,360         3,778   
  

 

 

    

 

 

    

 

 

 
   $ 460,724       $ 507,712       $ 653,377   
  

 

 

    

 

 

    

 

 

 

Non-Performing Assets

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

At March 31, 2013, nonaccrual loans totaled $37.5 million, a decrease of approximately $1.4 million since December 31, 2012. The decrease in nonaccrual loans is due to the sale of problem assets during the first quarter of 2013 and a significant slowdown in the formation of new problem credits. Non-performing assets as a percentage of total assets were 2.72%, 2.61% and 2.91% at March 31, 2013, December 31, 2012 and March 31, 2012, respectively.

Non-performing assets at March 31, 2013, December 31, 2012 and March 31, 2012 were as follows:

 

(Dollars in Thousands)

   March 31,
2013
     December 31,
2012
     March 31,
2012
 

Total nonaccrual loans

   $ 37,476       $ 38,885       $ 52,258   

Accruing loans delinquent 90 days or more

     —           —           —     

Other real estate owned and repossessed collateral

     40,434         39,850         36,414   
  

 

 

    

 

 

    

 

 

 

Total non-performing assets

   $ 77,910       $ 78,735       $ 88,672   
  

 

 

    

 

 

    

 

 

 

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. The following table presents the amount of accruing troubled debt restructurings by loan class at March 31, 2013, December 31, 2012 and March 31, 2012:

 

     March 31,2013      December 31,2012      March 31, 2012  
     (in thousands)  

Loan class:

   #      Balance      #      Balance      #      Balance  

Commercial, financial & agricultural

     5       $ 799         5       $ 802         —         $ —     

Real estate – construction & development

     5         1,883         5         1,735         6         1,305   

Real estate – commercial & farmland

     16         8,878         16         8,947         18         17,765   

Real estate – residential

     26         6,953         28         7,254         22         7,778   

Consumer installment

     —           —           1         6         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     52       $ 18,513         55       $ 18,744         46       $ 26,848   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

45


Commercial Lending Practices

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

The CRE guidance is applicable when either:

 

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

 

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

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

As of March 31, 2013, the Company exhibited a concentration in CRE loans based on Federal Reserve Call codes. The primary risks of CRE lending are:

 

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

 

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

 

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

The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of March 31, 2013 and December 31, 2012. The loan categories and concentrations below are based on Federal Reserve Call codes and include covered loans.

 

      March 31, 2013     December 31, 2012  
(Dollars in Thousands)    Balance      % of Total
Loans
    Balance      % of Total
Loans
 

Construction and development loans

   $ 187,275         10   $ 184,383         9

Multi-family loans

     69,273         3     60,111         3

Nonfarm non-residential loans

     957,205         49     950,910         49
  

 

 

    

 

 

   

 

 

    

 

 

 

Total CRE Loans

   $ 1,213,753         62   $ 1,195,404         61

All other loan types

     739,724         38     762,943         39
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Loans

   $ 1,953,477         100   $ 1,958,347         100
  

 

 

    

 

 

   

 

 

    

 

 

 

The following table outlines the percent of total CRE loans, net owner occupied loans to total risk-based capital, and the Company’s internal concentration limits as of March 31, 2013 and December 31, 2012.

 

     Internal     March 31, 2013     December 31, 2012  
     Limit     Actual     Actual  

Construction and development

     100     66     66

Commercial real estate

     300     236     237

Short-Term Investments

The Company’s short-term investments are comprised of federal funds sold and interest bearing balances. At March 31, 2013, the Company’s short-term investments were $81.2 million, compared to $193.7 million and $194.2 million at December 31, 2012 and March 31, 2012, respectively. At March 31, 2013, all of the balance was comprised of interest bearing balances, the majority of which were at the Federal Reserve Bank of Atlanta.

 

46


Derivative Instruments and Hedging Activities

The Company had a cash flow hedge with a notional amount of $37.1 million at March 31, 2013, December 31, 2012 and March 31, 2012 for the purpose of converting the variable rate on the junior subordinated debentures to fixed rate. The fair value of these instruments amounted to a liability of approximately $2.6 million, $3.0 million and $2.1 million at March 31, 2013, December 31, 2012 and March 31, 2012, respectively. The Company also had forward contracts with a fair value of approximately $1.6 million and $1.2 million at March 31, 2013 and December 31, 2012, respectively, to hedge changes in the value of the mortgage inventory due to changes in market interest rates. No hedge ineffectiveness from cash flow hedges was recognized in the statement of operations. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

Capital

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

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

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

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

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

As of March 31, 2013, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. The following table sets forth the regulatory capital ratios of Ameris at March 31, 2013, December 31, 2012 and March 31, 2012.

 

     March 31,
2013
    December 31,
2012
    March 31,
2012
 

Leverage Ratio(tier 1 capital to average assets)

      

Consolidated

     10.93     10.34     11.01

Ameris Bank

     10.88        10.30        10.93   

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

      

Consolidated

     17.49        17.49        19.12   

Ameris Bank

     17.43        17.40        19.01   

Total Capital Ratio(total capital to risk weighted assets)

      

Consolidated

     18.74        18.74        20.38   

Ameris Bank

     18.68        18.65        20.27   

Capital Purchase Program

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

 

47


Cumulative dividends on the Preferred Shares that remain outstanding will accrue on the liquidation preference at a rate of 5% per annum for the first five years and at a rate of 9% per annum thereafter, but such dividends will be paid only if, as and when declared by the Company’s Board of Directors. The Preferred Shares have no maturity date and rank senior to the Common Stock (and pari passu with the Company’s other authorized preferred stock, of which no shares are currently designated or outstanding) with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of the Company. Subject to the approval of the Federal Reserve, the Preferred Shares are redeemable at the option of the Company at 100% of their liquidation preference.

The Purchase Agreement pursuant to which the Preferred Shares and the Warrant were sold contains limitations on the payment of dividends on the Common Stock and on the Company’s ability to repurchase its Common Stock, and subjects the Company to certain of the executive compensation limitations included in the EESA and related regulations.

Interest Rate Sensitivity and Liquidity

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

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

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

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

Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of Ameris to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term investments at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks, which could provide funds on short notice, if needed. The Company has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is equal to 20% of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. There were no outstanding borrowings with the Company’s correspondent banks at March 31, 2013 and December 31, 2012. At March 31, 2012, there were $3.8 million outstanding borrowings with the Company’s correspondent banks.

 

48


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

 

     March 31,
2013
    December 31,
2012
    September 30,
2012
    June 30,
2012
    March 31,
2012
 

Investment securities available for sale to total deposits

     13.01     13.22     13.99     14.42     13.95

Loans (net of unearned income) to total deposits(1)

     59.95     55.27     55.81     53.66     49.67

Interest-earning assets to total assets

     83.90     84.39     82.83     84.41     84.06

Interest-bearing deposits to total deposits

     80.28     80.54     82.00     83.14     83.32

 

(1) Loans exclude covered assets where appropriate

The liquidity resources of the Company are monitored continuously by the ALCO Committee and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s and the Bank’s liquidity ratios at March 31, 2013 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed only to U.S. dollar interest rate changes, and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company’s hedging activities are limited to cash flow hedges and are part of the Company’s program to manage interest rate sensitivity. At March 31, 2013, the Company had one effective LIBOR rate swap with a notional amount of $37.1 million. The LIBOR rate swap exchanges fixed rate payments of 4.15% for floating rate payments based on the three month LIBOR and matures December 2018. The Company also had forward contracts with a fair value of approximately $1.6 million at March 31, 2013 to hedge changes in the value of the mortgage inventory due to changes in market interest rates. Finally, the Company has no exposure to foreign currency exchange rate risk, commodity price risk and other market risks.

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

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

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

 

Item 4. Controls and Procedures

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

During the quarter ended March 31, 2013, there was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

49


PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

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

 

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A. of Part 1 in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

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

None.

 

Item 3. Defaults Upon Senior Securities

None.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

Item 5. Other Information

None.

 

Item 6. Exhibits

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

SIGNATURE

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

 

    AMERIS BANCORP
Date: May 10, 2013    
   

/s/ Dennis J. Zember Jr.

    Dennis J. Zember Jr.,
    Executive Vice President and Chief Financial Officer
    (duly authorized signatory and principal accounting and financial officer)

 

50


EXHIBIT INDEX

 

Exhibit
No.

  

Description

3.1    Articles of Incorporation of Ameris Bancorp, as amended (incorporated by reference to Exhibit 2.1 to Ameris Bancorp’s Regulation A Offering Statement on Form 1-A filed with the Commission on August 14, 1987).
3.2    Amendment to Amended Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1.1 to Ameris Bancorp’s Form 10-K filed with the Commission on March 28, 1996).
3.3    Amendment to Amended Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 4.3 to Ameris Bancorp’s Registration Statement on Form S-4 filed with the Commission on July 17, 1996).
3.4    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.5 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 25, 1998).
3.5    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 26, 1999).
3.6    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.9 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 31, 2003).
3.7    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on December 1, 2005).
3.8    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on November 21, 2008).
3.9    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on June 1, 2011).
3.10    Amended and Restated Bylaws of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on March 14, 2005).
31.1    Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer
31.2    Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer
32.1    Section 1350 Certification by the Company’s Chief Executive Officer
32.2    Section 1350 Certification by the Company’s Chief Financial Officer
101    The following financial statements from Ameris Bancorp’s Form 10-Q for the quarter ended March 31, 2013, formatted as interactive data files in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Earnings and Comprehensive Income; (iii) Consolidated Statements of Changes in Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements. (1)

 

(1) 

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

51