FORM 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 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 a smaller reporting company)    Smaller reporting company   ¨

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

There were 23,905,509 shares of Common Stock outstanding as of October 31, 2013.

 

 

 


Table of Contents

AMERIS BANCORP

TABLE OF CONTENTS

 

         Page  
PART I – FINANCIAL INFORMATION   
Item 1.  

Financial Statements.

  
 

Consolidated Balance Sheets at September 30, 2013, December 31, 2012 and September  30, 2012

     1   
 

Consolidated Statements of Earnings and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2013 and 2012

     2   
 

Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September  30, 2013 and 2012

     3   
 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012

     4   
 

Notes to Consolidated Financial Statements

     5   
Item 2.  

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

     37   
Item 3.  

Quantitative and Qualitative Disclosures About Market Risk.

     50   
Item 4.  

Controls and Procedures.

     50   
PART II – OTHER INFORMATION   
Item 1.  

Legal Proceedings.

     51   
Item 1A.  

Risk Factors.

     51   
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds.

     51   
Item 3.  

Defaults Upon Senior Securities.

     51   
Item 4.  

Mine Safety Disclosures.

     51   
Item 5.  

Other Information.

     51   
Item 6.  

Exhibits.

     51   
Signatures      52   


Table of Contents

Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

 

     September 30,
2013
    December 31,
2012
    September 30,
2012
 
     (Unaudited)     (Audited)     (Unaudited)  

Assets

      

Cash and due from banks

   $ 53,516      $ 80,256      $ 57,289   

Federal funds sold and interest-bearing accounts

     73,899        193,677        66,872   

Investment securities available for sale, at fair value

     312,248        346,909        361,051   

Other investments

     7,764        6,832        7,003   

Mortgage loans held for sale

     69,634        48,786        29,021   

Loans

     1,589,267        1,450,635        1,439,862   

Covered loans

     417,649        507,712        546,234   

Less: allowance for loan losses

     23,854        23,593        25,901   
  

 

 

   

 

 

   

 

 

 

Loans, net

     1,983,062        1,934,754        1,960,195   
  

 

 

   

 

 

   

 

 

 

Other real estate owned

     37,978        39,850        37,325   

Covered other real estate owned

     52,552        88,273        88,895   
  

 

 

   

 

 

   

 

 

 

Total other real estate owned

     90,530        128,123        126,220   
  

 

 

   

 

 

   

 

 

 

FDIC loss-share receivable

     81,763        159,724        198,440   

Premises and equipment, net

     65,661        75,983        75,609   

Intangible assets, net

     1,972        3,040        3,404   

Goodwill

     956        956        956   

Cash value of bank owned life insurance

     49,095        15,603        50,087   

Other assets

     28,402        24,409        13,236   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 2,818,502      $ 3,019,052      $ 2,949,383   
  

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

      

Liabilities

      

Deposits:

      

Noninterest-bearing

   $ 475,505      $ 510,751      $ 464,503   

Interest-bearing

     1,967,916        2,113,912        2,115,614   
  

 

 

   

 

 

   

 

 

 

Total deposits

     2,443,421        2,624,663        2,580,117   

Securities sold under agreements to repurchase

     20,255        50,120        17,404   

Other borrowings

     5,000        —          —     

Other liabilities

     17,201        22,983        10,387   

Subordinated deferrable interest debentures

     42,269        42,269        42,269   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     2,528,146        2,740,035        2,650,177   
  

 

 

   

 

 

   

 

 

 

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

     27,938        27,662        51,207   

Common stock, par value $1; 100,000,000 shares authorized; 25,270,851, 25,154,818 and 25,155,318 issued

     25,271        25,155        25,155   

Capital surplus

     165,835        164,949        164,182   

Retained earnings

     83,025        65,710        62,156   

Accumulated other comprehensive income (loss)

     (531     6,607        7,337   

Treasury stock, at cost, 1,363,342, 1,355,050 and 1,336,174 shares

     (11,182     (11,066     (10,831
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     290,356        279,017        299,206   
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,818,502      $ 3,019,052      $ 2,949,383   
  

 

 

   

 

 

   

 

 

 

See notes to unaudited consolidated financial statements.

 

1


Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)

(dollars in thousands, except per share data)

(Unaudited)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2013     2012     2013     2012  

Interest income

        

Interest and fees on loans

   $ 29,633      $ 29,165      $ 88,208      $ 88,981   

Interest on taxable securities

     1,720        2,017        5,136        6,513   

Interest on nontaxable securities

     352        365        1,071        1,104   

Interest on deposits in other banks and federal funds sold

     44        104        158        342   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     31,749        31,651        94,573        96,940   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

        

Interest on deposits

     2,025        3,005        6,334        10,724   

Interest on other borrowings

     404        408        1,105        1,370   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     2,429        3,413        7,439        12,094   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     29,320        28,238        87,134        84,846   

Provision for loan losses

     2,920        6,540        10,008        26,647   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     26,400        21,698        77,126        58,199   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest income

        

Service charges on deposit accounts

     4,948        5,121        14,480        14,277   

Mortgage banking activity

     5,232        3,740        14,697        8,221   

Other service charges, commissions and fees

     593        331        1,539        1,044   

Gain on acquisitions

     —          —          —          20,037   

Gain (loss) on sale of securities

     —          —          171        —     

Other noninterest income

     1,515        639        4,145        2,391   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     12,288        9,831        35,032        45,970   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest expense

        

Salaries and employee benefits

     14,412        13,766        41,599        37,337   

Equipment and occupancy expenses

     3,149        3,340        9,058        9,555   

Amortization of intangible assets

     346        364        1,068        996   

Data processing and telecommunications expenses

     3,072        2,599        8,478        7,429   

Advertising and marketing expenses

     434        421        1,016        1,134   

Other noninterest expenses

     7,336        8,320        23,102        33,228   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     28,749        28,810        84,321        89,679   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

     9,939        2,719        27,837        14,490   

Applicable income tax expense

     3,262        816        9,197        4,727   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     6,677        1,903        18,640        9,763   

Less preferred stock dividends

     443        827        1,326        2,459   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common shareholders

     6,234        1,076        17,314        7,304   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

        

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

     (4,007     (228     (8,125     1,017   

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

     —          —          (111     —     

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

     (106     (240     1,098        (976
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (4,113     (468     (7,138     41   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

   $ 2,121      $ 608      $ 10,176      $ 7,345   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

   $ 0.26      $ 0.05      $ 0.72      $ 0.31   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   $ 0.26      $ 0.04      $ 0.71      $ 0.30   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

        

Basic

     23,901        23,819        23,883        23,800   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     24,316        23,973        24,298        23,954   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited consolidated financial statements.

 

2


Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in thousands, except per share data)

(Unaudited)

 

     Nine Months Ended     Nine Months Ended  
     September 30, 2013     September 30, 2012  
     Shares     Amount     Shares      Amount  

PREFERRED STOCK

         

Issued at beginning of period

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

Accretion of fair value of warrant

     —         276        —          480   
  

 

 

   

 

 

   

 

 

    

 

 

 

Issued at end of period

     28,000      $ 27,938        52,000       $ 51,207   
  

 

 

   

 

 

   

 

 

    

 

 

 

COMMON STOCK

         

Issued at beginning of period

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

Issuance of restricted shares

     83,400        83        67,450         67   

Cancellation of restricted shares

     (1,000     (1     —           —     

Proceeds from exercise of stock options

     33,633        34        400         1   
  

 

 

   

 

 

   

 

 

    

 

 

 

Issued at end of period

     25,270,851      $ 25,271        25,155,318       $ 25,155   
  

 

 

   

 

 

   

 

 

    

 

 

 

CAPITAL SURPLUS

         

Balance at beginning of period

     $ 164,949         $ 166,639   

Repurchase of warrants

       —             (2,670

Stock-based compensation

       592           278   

Proceeds from exercise of stock options

       376           2   

Issuance of restricted shares

       (83        (67

Cancellation of restricted shares

       1           —     
    

 

 

      

 

 

 

Balance at end of period

     $ 165,835         $ 164,182   
    

 

 

      

 

 

 

RETAINED EARNINGS

         

Balance at beginning of period

     $ 65,710         $ 54,852   

Net income

       18,640           9,763   

Dividends on preferred shares

       (275        (1,979

Accretion of fair value of warrant

       (1,050        (480
    

 

 

      

 

 

 

Balance at end of period

     $ 83,025         $ 62,156   
    

 

 

      

 

 

 

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 (loss)

       (7,138        41   
    

 

 

      

 

 

 

Balance at end of period

     $ (531      $ 7,337   
    

 

 

      

 

 

 

TREASURY STOCK

         

Balance at beginning of period

     $ (11,066      $ (10,831

Purchase of treasury shares

       (116        —     
    

 

 

      

 

 

 

Balance at end of period

     $ (11,182      $ (10,831
    

 

 

      

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

     $ 290,356         $ 299,206   
    

 

 

      

 

 

 

See notes to unaudited consolidated financial statements.

 

3


Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

 

     Nine Months Ended
September 30,
 
     2013     2012  

Cash flows from operating activities:

    

Net income

   $ 18,640      $ 9,763   

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

    

Depreciation

     3,683        3,585   

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

     (61     163   

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

     5,646        9,048   

Provision for loan losses

     10,008        26,647   

Gain on acquisitions

     —          (20,037

Amortization of intangible assets

     1,068        996   

Net change in mortgage loans held for sale

     (20,848     (17,458

Net gains on securities available for sale

     (171     —     

Change in other prepaids, deferrals and accruals, net

     15,537        16,236   
  

 

 

   

 

 

 

Net cash provided by operating activities

     33,502        28,943   
  

 

 

   

 

 

 

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

    

Net decrease in federal funds sold and interest-bearing deposits

     119,778        162,170   

Proceeds from maturities of securities available for sale

     46,005        82,623   

Purchase of securities available for sale

     (61,445     (89,787

Proceeds from sales of securities available for sale

     36,669        27,563   

Purchase of bank owned life insurance

     (30,000     (50,000

Net (increase) decrease in loans

     (95,370     (53,660

Proceeds from sales of other real estate owned

     55,270        57,443   

Proceeds from sales of premises and equipment

     1,889        409   

Purchases of premises and equipment

     (4,136     (6,642

Decrease in FDIC loss-share receivable

     77,961        96,608   

Net cash proceeds received from FDIC-assisted acquisitions

     —          220,516   
  

 

 

   

 

 

 

Net cash provided by investing activities

     146,621        447,243   
  

 

 

   

 

 

 

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

    

Net decrease in deposits

     (181,242     (429,185

Net decrease in securities sold under agreements to repurchase

     (29,865     (20,261

Proceeds from other borrowings

     5,000        —     

Decrease in other borrowings

     —          (30,334

Dividends paid – preferred stock

     (1,050     (1,979

Repurchase of warrants

     —          (2,670

Purchase of treasury shares

     (116     —     

Proceeds from exercise of stock options

     410        4   
  

 

 

   

 

 

 

Net cash used in financing activities

     (206,863     (484,425
  

 

 

   

 

 

 

Net change in cash and due from banks

     (26,740     (8,239

Cash and due from banks at beginning of period

     80,256        65,528   
  

 

 

   

 

 

 

Cash and due from banks at end of period

   $ 53,516      $ 57,289   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Cash paid during the period for:

    

Interest

   $ 7,840      $ 13,699   

Income taxes

     11,304        52   

Loans transferred to other real estate owned

     37,054        61,237   

See notes to unaudited consolidated financial statements.

 

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Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 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 September 30, 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. The Company’s Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within the Company’s established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of their unique market.

The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended September 30, 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 2013-11 – Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”). ASU 2013-11 requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. However, if a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments are not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

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.

 

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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.

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

Although the Company has determined that the majority of the inputs used to value its derivative fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself or the counterparty. However, as of September 30, 2013, December 31, 2012 and September 30, 2012, 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
September 30, 2013 Using:
 
     Carrying
Amount
     Level 1      Level 2      Level 3      Total  
     (Dollars in Thousands)  

Financial assets:

              

Loans, net

   $ 1,983,062       $ —         $ 1,561,480       $ 461,213       $ 2,022,693   

Financial liabilities:

              

Deposits

     2,443,421         —           2,444,244         —           2,444,244   

 

            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
September 30, 2012 Using:
 
     Carrying
Amount
     Level 1      Level 2      Level 3      Total  
     (Dollars in Thousands)  

Financial assets:

              

Loans, net

   $ 1,960,195       $ —         $ 1,393,115       $ 596,671       $ 1,989,786   

Financial liabilities:

              

Deposits

     2,580,117         —           2,581,465         —           2,581,465   

 

 

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The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of September 30, 2013, December 31, 2012 and September 30, 2012 (dollars in thousands):

 

     Fair Value Measurements on a Recurring Basis
As of September 30, 2013
 
     Fair Value      Quoted Prices
in Active

Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

U.S. government agencies

   $ 13,917       $ —         $ 13,917       $ —     

State, county and municipal securities

     112,939         4,460         108,479         —     

Corporate debt securities

     9,738         —           7,738         2,000   

Mortgage-backed securities

     175,654         9,375         166,279         —     

Mortgage loans held for sale

     69,634         —           69,634         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring assets at fair value

   $ 381,882       $ 13,835       $ 366,047       $ 2,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments

   $ 972       $ —         $ 972       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring liabilities at fair value

   $ 972       $ —         $ 972       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     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 September 30, 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

   $ 8,895       $ —         $ 8,895       $ —     

State, county and municipal securities

     111,742         6,932         104,810         —     

Corporate debt securities

     11,495         —           9,495         2,000   

Mortgage-backed securities

     228,919         1,965         226,954         —     

Mortgage loans held for sale

     29,021         —           29,021         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring assets at fair value

   $ 390,072       $ 8,897       $ 379,175       $ 2,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial instruments

   $ 3,233       $ —         $ 3,233       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring liabilities at fair value

   $ 3,233       $ —         $ 3,233       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following table is a presentation of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy as of September 30, 2013, December 31, 2012 and September 30, 2012 (dollars in thousands):

 

     Fair Value Measurements on a Nonrecurring Basis
As of September 30, 2013
 
     Fair Value      Level 1      Level 2      Level 3  

Impaired loans carried at fair value

   $ 43,564       $ —         $ —         $ 43,564   

Other real estate owned

     37,978         —           —           37,978   

Covered loans

     417,649         —           —           417,649   

Covered other real estate owned

     52,552         —           —           52,552   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-recurring assets at fair value

   $ 551,743       $ —         $ —         $ 551,743   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements on a Nonrecurring Basis
As of December 31, 2012
 
     Fair Value      Level 1      Level 2      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 September 30, 2012
 
     Fair Value      Level 1      Level 2      Level 3  

Impaired loans carried at fair value

   $ 50,437       $ —         $ —         $ 50,437   

Other real estate owned

     37,325         —           —           37,325   

Covered loans

     546,234         —           —           546,234   

Covered other real estate owned

     88,895         —           —           88,895   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring assets at fair value

   $ 722,891       $ —         $ —         $ 722,891   
  

 

 

    

 

 

    

 

 

    

 

 

 

The inputs used to determine estimated fair value of impaired loans and covered loans include market conditions, loan term, underlying collateral characteristics and discount rates. The inputs used to determine fair value of other real estate owned and covered other real estate owned include market conditions, estimated marketing period or holding period, underlying collateral characteristics and discount rates.

For the nine months ended September 30, 2013 and 2012, there was not a change in the methods and significant assumptions used to estimate fair value.

The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities.

 

Measurements

   Fair Value at
September 30, 2013
     Valuation Technique    Unobservable Inputs    Range
(Dollars in Thousands)

Nonrecurring:

           

Impaired loans

   $ 43,564       Third party appraisals and
discounted cash flows
   Collateral discounts and
discount rates
   4.00% - 75.00%

Other real estate owned

     37,978       Third party appraisals    Collateral discounts and
estimated costs to sell
   10.00% - 78.00%

Covered loans

     417,649       Third party appraisals and
discounted cash flows
   Collateral discounts

Discount rate

   1.75% - 75.00%

Covered real estate owned

     52,552       Third party appraisals    Collateral discounts and
estimated costs to sell
   10.00% - 84.00%

Recurring:

           

Investment securities available for sale

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

 

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The transfers between the fair value hierarchy levels during the nine months ended September 30, 2013 and 2012 involved the transferring of loans to impaired loans, impaired loans to other real estate owned and covered loans to covered other real estate owned. These transfers are reflected in Ameris’ reconciliation of Level 3 assets below.

 

     Investment
Securities
Available
for

Sale
     Impaired
Loans
Carried at
Fair Value
    Other Real
Estate
Owned
    Covered
Loans
    Covered
Other
Real Estate
Owned
 
     (Dollars in Thousands)  

Beginning balance, January 1, 2013

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

Total gains/(losses) included in net income

     —           —          (2,214     —          (3,432

Purchases, sales, issuances, and settlements, net

     —           (621     (7,987     (61,338 )     (61,014

Transfers in to Level 3

     —           —          —          —         —     

Asset reclassification, within Level 3

     —           (8,329     8,329        (28,725     28,725   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance September 30, 2013

   $ 2,000       $ 43,564      $ 37,978      $ 417,649      $ 52,552   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

     Investment
Securities
Available
for

Sale
     Impaired
Loans
Carried at
Fair Value
    Other Real
Estate
Owned
    Covered
Loans
    Covered
Other
Real Estate

Owned
 
     (Dollars in Thousands)  

Beginning balance, January 1, 2012

   $ 2,000       $ 70,296      $ 46,680      $ 571,489      $ 78,617   

Total gains/(losses) included in net income

     —           —          (9,048     —          —     

Purchases, sales, issuances, and settlements, net

     —           —          (21,008     15,281       (30,258

Transfers in to Level 3

     —           842        —          —         —     

Asset reclassification, within Level 3

     —           (20,701     20,701        (40,536     40,536   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance September 30, 2012

   $ 2,000       $ 50,437      $ 37,325      $ 546,234      $ 88,895   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 2 – PENDING MERGER AND ACQUISITION

On May 1, 2013, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with The Prosperity Banking Company (“Prosperity”), a bank holding company headquartered in Saint Augustine, Florida. Prosperity Bank is a wholly owned bank subsidiary of Prosperity. Prosperity Bank has a total of 12 banking locations, with the majority of the franchise concentrated in northeast Florida. As of June 30, 2013, Prosperity reported assets of $754 million, loans of $485 million and deposits of $493 million. Under the terms of the Merger Agreement, Prosperity will merge with and into Ameris, with Ameris as the surviving entity in the merger. In addition, Prosperity Bank will be merged with and into the Bank, with the Bank as the surviving entity.

Pursuant to the terms of the Merger Agreement, Prosperity shareholders will have the option to elect to receive either 3.125 shares of the Company’s common stock or $41.50 in cash for each share of Prosperity common stock they hold, subject to the requirement that no more than 50% of the outstanding shares of Prosperity may receive cash. Assuming 100% stock consideration, the transaction would be valued at approximately $15.7 million, based on the Company’s closing stock price of $13.32 on May 1, 2013 and Prosperity’s common shares outstanding of 377,960 as of that date.

Consummation of the merger is subject to customary conditions, including, among others, approval of the Merger Agreement by Prosperity’s shareholders and the receipt of required regulatory approvals. The transaction is expected to close during the fourth quarter of 2013.

 

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NOTE 3 – INVESTMENT SECURITIES

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

The amortized cost and estimated fair value of investment securities available for sale at September 30, 2013, December 31, 2012 and September 30, 2012 are presented below:

 

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

September 30, 2013:

          

U. S. government agencies

   $ 14,945       $ —         $ (1,028   $ 13,917   

State, county and municipal securities

     112,643         2,331         (2,035     112,939   

Corporate debt securities

     10,314         280         (856     9,738   

Mortgage-backed securities

     176,818         2,714         (3,878     175,654   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities

   $ 314,720       $ 5,325       $ (7,797   $ 312,248   
  

 

 

    

 

 

    

 

 

   

 

 

 

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 securities

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

 

 

    

 

 

    

 

 

   

 

 

 

September 30, 2012:

          

U. S. government agencies

   $ 8,606       $ 289       $ —       $ 8,895   

State, county and municipal securities

     106,541         5,345         (144     111,742   

Corporate debt securities

     11,793         262         (560     11,495   

Mortgage-backed securities

     222,641         6,562         (284     228,919   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities

   $ 349,581       $ 12,458       $ (988   $ 361,051   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

12


Table of Contents

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

   $ 2,214       $ 2,229   

Due from one year to five years

     36,699         37,826   

Due from five to ten years

     68,790         67,622   

Due after ten years

     30,199         28,917   

Mortgage-backed securities

     176,818         175,654   
  

 

 

    

 

 

 
   $ 314,720       $ 312,248   
  

 

 

    

 

 

 

Securities with a carrying value of approximately $217.3 million serve as collateral to secure public deposits and other purposes required or permitted by law at September 30, 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 September 30, 2013, December 31, 2012 and September 30, 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)  

September 30, 2013:

               

U. S. government agencies

   $ 13,917       $ (1,028   $ —         $ —        $ 13,917       $ (1,028

State, county and municipal securities

     46,516         (1,735     3,807         (300     50,323         (2,035

Corporate debt securities

     —           —          4,235         (856     4,235         (856

Mortgage-backed securities

     90,639         (3,878     —           —          90,639         (3,878
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 151,072       $ (6,641   $ 8,042       $ (1,156   $ 159,114       $ (7,797
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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 temporarily impaired securities

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

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

September 30, 2012:

               

U. S. government agencies

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

State, county and municipal securities

     14,653         (132     505         (12     15,158         (144

Corporate debt securities

     —           —          5,551         (560     5,551         (560

Mortgage-backed securities

     32,660         (267     3,434         (17     36,094         (284
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 47,313       $ (399   $ 9,490       $ (589   $ 56,803       $ (988
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

13


Table of Contents

NOTE 4 – LOANS

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

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

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

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

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

 

(Dollars in Thousands)

   September 30,
2013
     December 31,
2012
     September 30,
2012
 

Commercial, financial and agricultural

   $ 244,991       $ 174,217       $ 189,374   

Real estate – construction and development

     132,277         114,199         125,315   

Real estate – commercial and farmland

     799,149         732,322         713,240   

Real estate – residential

     355,920         346,480         343,332   

Consumer installment

     36,303         40,178         43,441   

Other

     20,627         43,239         25,160   
  

 

 

    

 

 

    

 

 

 
   $ 1,589,267       $ 1,450,635       $ 1,439,862   
  

 

 

    

 

 

    

 

 

 

 

14


Table of Contents

Covered loans are defined as loans that were acquired in FDIC-assisted transactions that are covered by a loss-sharing agreement with the FDIC. Covered loans totaling $417.6 million, $507.7 million and $546.2 million at September 30, 2013, December 31, 2012 and September 30, 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)

   September 30,
2013
     December 31,
2012
     September 30,
2012
 

Commercial, financial and agricultural

   $ 27,768       $ 32,606       $ 37,167   

Real estate – construction and development

     50,702         70,184         73,356   

Real estate – commercial and farmland

     237,086         278,506         298,903   

Real estate – residential

     101,146         125,056         135,154   

Consumer installment

     947         1,360         1,654   
  

 

 

    

 

 

    

 

 

 
   $ 417,649       $ 507,712       $ 546,234   
  

 

 

    

 

 

    

 

 

 

Nonaccrual and Past Due Loans

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

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

 

(Dollars in Thousands)

   September 30,
2013
     December 31,
2012
     September 30,
2012
 

Commercial, financial and agricultural

   $ 4,198       $ 4,138       $ 4,285   

Real estate – construction and development

     4,229         9,281         8,201   

Real estate – commercial and farmland

     9,548         11,962         11,408   

Real estate – residential

     13,303         12,595         13,236   

Consumer installment

     442         909         1,095   
  

 

 

    

 

 

    

 

 

 
   $ 31,720       $ 38,885       $ 38,225   
  

 

 

    

 

 

    

 

 

 

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

 

(Dollars in Thousands)

   September 30,
2013
     December 31,
2012
     September 30,
2012
 

Commercial, financial and agricultural

   $ 7,872       $ 10,765       $ 11,938   

Real estate – construction and development

     16,582         20,027         21,971   

Real estate – commercial and farmland

     37,079         55,946         58,377   

Real estate – residential

     13,028         28,672         31,189   

Consumer installment

     350         302         426   
  

 

 

    

 

 

    

 

 

 
   $ 74,911       $ 115,712       $ 123,901   
  

 

 

    

 

 

    

 

 

 

 

15


Table of Contents

The following table presents an aging analysis of non-covered loans as of September 30, 2013, December 31, 2012 and September 30, 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 September 30, 2013:

                    

Commercial, financial & agricultural

   $ 623       $ 297       $ 4,107       $ 5,027       $ 239,964       $ 244,991       $ —     

Real estate – construction & development

     1,200         794         4,229         6,223         126,054         132,277         —     

Real estate – commercial & farmland

     3,883         2,458         9,523         15,864         783,285         799,149         —     

Real estate – residential

     5,515         3,531         11,818         20,864         335,056         355,920         —     

Consumer installment loans

     497         255         327         1,079         35,224         36,303         —     

Other

     —           —           —           —           20,627         20,627         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     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 September 30, 2012:

                    

Commercial, financial & agricultural

   $ 1,192       $ 639       $ 3,786       $ 5,617       $ 183,757       $ 189,374       $ —     

Real estate – construction & development

     518         152         8,180         8,850         116,465         125,315         —     

Real estate – commercial & farmland

     3,507         812         11,402         15,721         697,519         713,240         —     

Real estate – residential

     7,200         2,346         12,372         21,918         321,414         343,332         —     

Consumer installment loans

     687         284         993         1,964         41,477         43,441         —     

Other

     —           —           —           —           25,160         25,160         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 13,104       $ 4,233       $ 36,733       $ 54,070       $ 1,385,792       $ 1,439,862       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

16


Table of Contents

The following table presents an aging analysis of covered loans as of September 30, 2013, December 31, 2012 and September 30, 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 September 30, 2013:

                    

Commercial, financial & agricultural

   $ 319       $ 50       $ 6,695       $ 7,064       $ 20,704       $ 27,768       $ —     

Real estate – construction & development

     2,831         658         15,781         19,270         31,432         50,702         266   

Real estate – commercial & farmland

     7,365         5,350         30,503         43,218         193,868         237,086         568   

Real estate – residential

     2,980         1,727         11,078         15,785         85,361         101,146         823   

Consumer installment loans

     49         —           311         360         587         947         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     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 September 30, 2012:

                    

Commercial, financial & agricultural

   $ 1,384       $ 788       $ 11,315       $ 13,487       $ 23,680       $ 37,167       $ —     

Real estate – construction & development

     3,611         1,663         22,194         27,468         45,888         73,356         2,312   

Real estate – commercial & farmland

     7,072         6,559         51,382         65,013         233,890         298,903         808   

Real estate – residential

     4,702         3,349         28,559         36,610         98,544         135,154         1,018   

Consumer installment loans

     56         92         255         403         1,251         1,654         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 16,825       $ 12,451       $ 113,705       $ 142,981       $ 403,253       $ 546,234       $ 4,138   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

Impaired Loans

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

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

 

     As of and For the Period Ended  
     September 30,
2013
     December 31,
2012
     September 30,
2012
 
     (Dollars in Thousands)  

Nonaccrual loans

   $ 31,720       $ 38,885       $ 38,225   

Troubled debt restructurings not included above

     17,024         18,744         19,893   
  

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 48,744       $ 57,629       $ 58,118   
  

 

 

    

 

 

    

 

 

 

Impaired loans not requiring a related allowance

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Impaired loans requiring a related allowance

   $ 48,744       $ 57,629       $ 58,118   
  

 

 

    

 

 

    

 

 

 

Allowance related to impaired loans

   $ 5,180       $ 5,115       $ 7,681   
  

 

 

    

 

 

    

 

 

 

Average investment in impaired loans

   $ 53,047       $ 70,209       $ 73,353   
  

 

 

    

 

 

    

 

 

 

Interest income recognized on impaired loans

   $ 468       $ 495       $ 376   
  

 

 

    

 

 

    

 

 

 

Foregone interest income on impaired loans

   $ 388       $ 718       $ 491   
  

 

 

    

 

 

    

 

 

 

The following table presents an analysis of information pertaining to non-covered impaired loans as of September 30, 2013, December 31, 2012 and September 30, 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 September 30, 2013:

                 

Commercial, financial & agricultural

   $ 7,401       $ —         $ 4,719       $ 4,719       $ 820       $ 4,900   

Real estate – construction & development

     14,299         —           6,155         6,155         821         8,960   

Real estate – commercial & farmland

     18,628         —           16,241         16,241         1,999         18,079   

Real estate – residential

     24,701         —           21,174         21,174         1,530         20,427   

Consumer installment loans

     565         —           455         455         10         681   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 65,594       $ —         $ 48,744       $ 48,744       $ 5,180       $ 53,047   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

18


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

As of December 31, 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 September 30, 2012:

                 

Commercial, financial & agricultural

   $ 8,261       $ —         $ 5,089       $ 5,089       $ 876       $ 4,974   

Real estate – construction & development

     19,583         —           9,682         9,682         1,253         11,879   

Real estate – commercial & farmland

     25,346         —           20,948         20,948         2,907         33,070   

Real estate – residential

     24,993         —           21,304         21,304         2,616         22,303   

Consumer installment loans

     1,220         —           1,095         1,095         29         1,127   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 79,403       $ —         $ 58,118       $ 58,118       $ 7,681       $ 73,353   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     As of and For the Period Ended  
     September 30,
2013
     December 31,
2012
     September 30,
2012
 
     (Dollars in Thousands)  

Nonaccrual loans

   $ 74,911       $ 115,712       $ 123,901   

Troubled debt restructurings not included above

     21,184         19,194         25,926   
  

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 96,095       $ 134,906       $ 149,827   
  

 

 

    

 

 

    

 

 

 

Impaired loans not requiring a related allowance

   $ 96,095       $ 134,906       $ 149,827   
  

 

 

    

 

 

    

 

 

 

Impaired loans requiring a related allowance

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Allowance related to impaired loans

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Average investment in impaired loans

   $ 115,689       $ 163,825       $ 171,055   
  

 

 

    

 

 

    

 

 

 

Interest income recognized on impaired loans

   $ 793       $ 849       $ 1,319   
  

 

 

    

 

 

    

 

 

 

Foregone interest income on impaired loans

   $ 286       $ 491       $ 554   
  

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

The following table presents an analysis of information pertaining to impaired covered loans as of September 30, 2013, December 31, 2012 and September 30, 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 September 30, 2013:

                 

Commercial, financial & agricultural

   $ 10,645       $ 7,884       $ —         $ 7,884       $ —         $ 9,052   

Real estate – construction & development

     25,401         20,890         —           20,890         —           22,734   

Real estate – commercial & farmland

     51,105         43,279         —           43,279         —           54,292   

Real estate – residential

     28,078         23,692         —           23,692         —           29,316   

Consumer installment loans

     404         350         —           350         —           295   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 115,633       $   96,095       $ —         $   96,095       $ —         $ 115,689   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     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 September 30, 2012:

                 

Commercial, financial & agricultural

   $ 17,833       $ 11,976       $ —         $ 11,976       $ —         $ 12,932   

Real estate – construction & development

     34,787         23,833         —           23,833         —           31,653   

Real estate – commercial & farmland

     98,909         72,802         —           72,802         —           82,430   

Real estate – residential

     54,020         40,790         —           40,790         —           43,492   

Consumer installment loans

     890         426         —           426         —           548   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 206,439       $ 149,827       $ —         $ 149,827       $ —         $ 171,055   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit Quality Indicators

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

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

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

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

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

 

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Table of Contents

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

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

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

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

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

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

 

Risk
Grade

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the 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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

21


Table of Contents

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

 

Risk

Grade

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Total    $ 189,374       $ 125,315       $ 713,240       $ 343,332       $ 43,441       $ 25,160       $ 1,439,862   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

Risk

Grade

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22


Table of Contents

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

 

Risk

Grade

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Total    $ 37,167       $ 73,356       $ 298,903       $ 135,154       $ 1,654       $ —         $ 546,234   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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) it otherwise becomes well secured and in the process of collection. Restoration to accrual status on any given loan must be supported by a well-documented credit evaluation of the borrower’s financial condition and the prospects for full repayment, approved by the Company’s Senior Credit Officer.

In the normal course of business, the Company renews loans with a modification of the interest rate or terms that are not deemed as troubled debt restructurings because the borrower is not experiencing financial difficulty. The Company modified loans in the first nine months of 2013 totaling $17.0 million and loans in the first nine months of 2012 totaling $23.5 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


Table of Contents

The following table presents the amount of troubled debt restructurings by loan class, classified separately as accrual and non-accrual at September 30, 2013, December 31, 2012 and September 30, 2012:

 

As of September 30, 2013    Accruing Loans      Non-Accruing Loans  
          Balance           Balance  

Loan class:

   #    (in thousands)      #    (in thousands)  

Commercial, financial & agricultural

   4    $ 521       3    $ 533   

Real estate – construction & development

   8      1,926       1      29   

Real estate – commercial & farmland

   16      6,693       3      1,858   

Real estate – residential

   35      7,871       7      704   

Consumer installment

   1      13       2      26   
  

 

  

 

 

    

 

  

 

 

 

Total

   64    $ 17,024       16    $ 3,150   
  

 

  

 

 

    

 

  

 

 

 

 

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

Loan class:

   #    (in thousands)      #    (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 September 30, 2012    Accruing Loans      Non-Accruing Loans  
          Balance           Balance  

Loan class:

   #    (in thousands)      #    (in thousands)  

Commercial, financial & agricultural

   5    $ 804       —      $ —     

Real estate – construction & development

   4      1,481       —        —     

Real estate – commercial & farmland

   15      9,540       1      2,770   

Real estate – residential

   27      8,068       2      620   
  

 

  

 

 

    

 

  

 

 

 

Total

   51    $ 19,893       3    $ 3,390   
  

 

  

 

 

    

 

  

 

 

 

 

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Table of Contents

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 September 30, 2013, December 31, 2012 and September 30, 2012:

 

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

Loan class:

   #    (in thousands)      #    (in thousands)  

Commercial, financial & agricultural

   3    $ 508       4    $ 546   

Real estate – construction & development

   6      1,881       3      74   

Real estate – commercial & farmland

   14      6,550       5      2,001   

Real estate – residential

   31      7,282       11      1,293   

Consumer installment

   2      37       1      2   
  

 

  

 

 

    

 

  

 

 

 

Total

   56    $ 16,258       24    $ 3,916   
  

 

  

 

 

    

 

  

 

 

 

 

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

Loan class:

   #    (in thousands)      #    (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 September 30, 2012    Loans Currently Paying
Under Restructured
Terms
     Loans that have Defaulted
Under Restructured
Terms
 
          Balance           Balance  

Loan class:

   #    (in thousands)      #    (in thousands)  

Commercial, financial & agricultural

   5    $ 804       —      $ —     

Real estate – construction & development

   4      1,481       —        —     

Real estate – commercial & farmland

   15      9,540       1      2,770   

Real estate – residential

   26      8,068       3      620   
  

 

  

 

 

    

 

  

 

 

 

Total

   50    $ 19,893       4    $ 3,390   
  

 

  

 

 

    

 

  

 

 

 

 

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The following table presents the amount of troubled debt restructurings by types of concessions made, classified separately as accrual and non-accrual at September 30, 2013, December 31, 2012 and September 30, 2012:

 

As of September 30, 2013    Accruing Loans      Non-Accruing Loans  
          Balance           Balance  

Type of concession:

   #    (in thousands)      #    (in thousands)  

Forbearance of interest

   9    $ 2,135       2    $ 101   

Forgiveness of principal

   3      1,479       1      145   

Payment modification only

   2      370       —        —     

Rate reduction only

   14      7,146       2      496   

Rate reduction, forbearance of interest

   18      2,878       10      2,379   

Rate reduction, forbearance of principal

   18      3,016       —        —     

Rate reduction, payment modification

   —        —         1      29   
  

 

  

 

 

    

 

  

 

 

 

Total

   64    $ 17,024       16    $ 3,150   
  

 

  

 

 

    

 

  

 

 

 

 

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

Type of concession:

   #    (in thousands)      #    (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 September 30, 2012    Accruing Loans      Non-Accruing Loans  
          Balance           Balance  

Type of concession:

   #    (in thousands)      #    (in thousands)  

Forbearance of interest

   2    $ 1,902       —      $ —     

Forgiveness of principal

   3      1,516       1      369   

Payment modification only

   2      1,292       1      251   

Rate reduction only

   10      5,889       —        —     

Rate reduction, forbearance of interest

   15      4,371       1      2,770   

Rate reduction, forbearance of principal

   18      4,874       —        —     

Rate reduction, payment modification

   1      49       —        —     
  

 

  

 

 

    

 

  

 

 

 

Total

   51    $ 19,893       3    $ 3,390   
  

 

  

 

 

    

 

  

 

 

 

 

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Table of Contents

The following table presents the amount of troubled debt restructurings by collateral types, classified separately as accrual and non-accrual at September 30, 2013, December 31, 2012 and September 30, 2012:

 

As of September 30, 2013    Accruing Loans      Non-Accruing Loans  
          Balance           Balance  

Collateral type:

   #    (in thousands)      #    (in thousands)  

Warehouse

   3    $ 1,065       1    $ 176   

Raw land

   3      1,337       1      29   

Agricultural land

   2      380       —        —     

Hotel & motel

   3      2,219       —        —     

Office

   4      1,924       —        —     

Retail, including strip centers

   4      1,105       2      1,682   

1-4 family residential

   40      8,460       7      704   

Life insurance policy

   1      250       —        —     

Automobile/equipment/inventory

   3      36       4      509   

Unsecured

   1      248       1      50   
  

 

  

 

 

    

 

  

 

 

 

Total

   64    $ 17,024       16    $ 3,150   
  

 

  

 

 

    

 

  

 

 

 

 

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

Collateral type:

   #    (in thousands)      #    (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 September 30, 2012    Accruing Loans      Non-Accruing Loans  
          Balance           Balance  

Collateral type:

   #    (in thousands)      #    (in thousands)  

Warehouse

   3    $ 1,621       —      $ —     

Raw land

   2      1,349       —        —     

Hotel & motel

   3      2,362       —        —     

Office

   2      1,503       1      2,770   

Retail, including strip centers

   7      4,054       —        —     

1-4 family residential

   30      8,216       2      620   

Inventory

   1      450       —        —     

Equipment

   1      38       —        —     

Unsecured

   2      300       —        —     
  

 

  

 

 

    

 

  

 

 

 

Total

   51    $ 19,893       3    $ 3,390   
  

 

  

 

 

    

 

  

 

 

 

As of September 30, 2013, December 31, 2012 and September 30, 2012, the Company had a balance of $20.2 million, $23.9 million and $23.3 million, respectively, in troubled debt restructurings. The Company has recorded $2.1 million, $1.9 million and $2.1 million in previous charge-offs on such loans at September 30, 2013, December 31, 2012 and September 30, 2012, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $412,000, $640,000 and $676,000 at September 30, 2013, December 31, 2012 and September 30, 2012, respectively. At September 30, 2013, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

 

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Table of Contents

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

During the nine months ended September 30, 2013, the year ended December 31, 2012 and the nine months ended September 30, 2012, the Company recorded provision for loan loss expense of $1.3 million, $2.6 million and $2.3 million, respectively, to account for losses where the initial estimate of cash flows was found to be excessive on loans acquired in FDIC-assisted transactions. These amounts are excluded from the rollforwards below but are reflected in the Company’s Consolidated Statements of Earnings and Comprehensive Income.

 

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Table of Contents

The following table details activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2013, the year ended December 31, 2012 and the nine months ended September 30, 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

     1,011        2,127        2,632        2,966        11        8,747   

Loans charged off

     (1,216     (1,598     (2,873     (3,430     (576     (9,693

Recoveries of loans previously charged off

     340        88        18        520        241        1,207   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2013

   $ 2,574      $ 5,960      $ 8,934      $ 5,954      $ 432      $ 23,854   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period-end amount allocated to:

            

Loans individually evaluated for impairment

   $ 741      $ 682      $ 1,997      $ 1,429      $ —        $ 4,849   

Loans collectively evaluated for impairment

     1,833        5,278        6,937        4,525        432        19,005   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 2,574      $ 5,960      $ 8,934      $ 5,954      $ 432      $ 23,854   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

            

Individually evaluated for impairment

   $ 3,657      $ 3,524      $ 14,605      $ 16,919      $ —        $ 38,705   

Collectively evaluated for impairment

     241,334        128,753        784,544        339,001        56,930        1,550,562   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 244,991      $ 132,277      $ 799,149      $ 355,920      $ 56,930      $ 1,589,267   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     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


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

Balance, January 1, 2012

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

Provision for loan losses

     677        4,954        13,087        4,936        706        24,360   

Loans charged off

     (889     (7,819     (18,199     (6,642     (618     (34,167

Recoveries of loans previously charged off

     101        23        32        199        197        552   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 30, 2012

   $ 2,807      $ 6,596      $ 9,146      $ 6,621      $ 731      $ 25,901   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period-end amount allocated to:

            

Loans individually evaluated for impairment

   $ 610      $ 526      $ 2,315      $ 2,105      $ —        $ 5,556   

Loans collectively evaluated for impairment

     2,197        6,070        6,831        4,516        731        20,345   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 2,807      $ 6,596      $ 9,146      $ 6,621      $ 731      $ 25,901   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans:

            

Individually evaluated for impairment

   $ 2,748      $ 5,510      $ 21,552      $ 15,178      $ —        $ 44,988   

Collectively evaluated for impairment

     186,626        119,805        691,688        328,154        68,601        1,394,874   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 189,374      $ 125,315      $ 713,240      $ 343,332      $ 68,601      $ 1,439,862   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 5 – ASSETS ACQUIRED IN FDIC-ASSISTED ACQUISITIONS

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

 

Bank Acquired

  

Location:

  

Branches:

  

Date Acquired

American United Bank (“AUB”)    Lawrenceville, Ga.    1    October 23, 2009
United Security Bank (“USB”)    Sparta, Ga.    2    November 6, 2009
Satilla Community Bank (“SCB”)    St. Marys, Ga.    1    May 14, 2010
First Bank of Jacksonville (“FBJ”)    Jacksonville, Fl.    2    October 22, 2010
Tifton Banking Company (“TBC”)    Tifton, Ga.    1    November 12, 2010
Darby Bank & Trust (“DBT”)    Vidalia, Ga.    7    November 12, 2010
High Trust Bank (“HTB”)    Stockbridge, Ga.    2    July 15, 2011
One Georgia Bank (“OGB”)    Midtown Atlanta, Ga.    1    July 15, 2011
Central Bank of Georgia (“CBG”)    Ellaville, Ga.    5    February 24, 2012
Montgomery Bank & Trust (“MBT”)    Ailey, Ga.    2    July 6, 2012

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

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

 

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Table of Contents

The following table summarizes components of all covered assets at September 30, 2013, December 31, 2012 and September 30, 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 September 30, 2013:

  (Dollars in Thousands)  

AUB

  $ 19,336      $ 915      $ —        $ 18,421      $ 3,338      $ 3      $ 3,335      $ 21,756      $ 3,704   

USB

    21,168        1,665        —          19,503        3,066        139        2,927        22,430        2,796   

SCB

    35,555        1,902        —          33,653        5,348        429        4,919        38,572        4,020   

FBJ

    27,222        3,965        —          23,257        1,582        170        1,412        24,669        4,990   

DBT

    116,685        21,739        —          94,946        19,720        1,639        18,081        113,027        23,955   

TBC

    35,588        2,519        54        33,015        5,912        843        5,069        38,084        4,315   

HTB

    70,156        8,232        41        61,883        6,998        2,445        4,553        66,436        11,065   

OGB

    63,794        6,658        108        57,028        9,921        3,918        6,003        63,031        9,458   

CBG

    92,755        16,712        100        75,943        8,299        2,046        6,253        82,196        17,460   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 482,259      $ 64,307      $ 303      $ 417,649      $ 64,184      $ 11,632      $ 52,552      $ 470,201      $ 81,763   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
    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 September 30, 2012:

  (Dollars in Thousands)  

AUB

  $ 28,955      $ 2,532      $ —        $ 26,423      $ 10,342      $ —        $ 10,342      $ 36,765      $ 3,256   

USB

    33,145        5,036        —          28,109        7,641        99        7,542        35,651        8,408   

SCB

    44,340        3,892        —          40,448        10,464        646        9,818        50,266        6,130   

FBJ

    33,312        6,299        43        26,970        3,407        572        2,835        29,805        6,731   

DBT

    186,815        47,598        331        138,886        33,404        2,798        30,606        169,492        63,789   

TBC

    51,084        5,790        212        45,082        10,110        1,533        8,577        53,659        15,559   

HTB

    95,904        18,727        56        77,121        15,219        5,766        9,453        86,574        23,698   

OGB

    86,091        18,719        146        67,226        7,874        3,663        4,211        71,437        21,419   

CBG

    139,583        43,406        208        95,969        8,518        3,007        5,511        101,480        49,450   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 699,229      $ 151,999      $ 996      $ 546,234      $ 106,979      $ 18,084      $ 88,895      $ 635,129      $ 198,440   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   September 30,
2013
     December 31,
2012
     September 30,
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)

   $ 50,703       $ 23,050       $ 16,210   

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

     6,305         13,190         11,435   

Amounts reflected in the Company’s Statement of Operations

   September 30,
2013
     December 31,
2012
     September 30,
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)

   $ 10,141       $ 4,610       $ 3,242   

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

     1,261         2,638         2,287   

 

 

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Table of Contents

A rollforward of acquired loans with deterioration of credit quality for the nine months ended September 30, 2013, the year ended December 31, 2012 and the nine months ended September 30, 2012 is shown below:

 

(Dollars in Thousands)

   September 30,
2013
    December 31,
2012
    September 30,
2012
 

Balance, January 1

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

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

     30,371        (17,712     (7,119

Additions due to acquisitions

     —         73,414        73,414  

Other (loan payments, transfers, etc.)

     (81,519     (80,755     (70,402
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 231,589      $ 282,737      $ 303,683   
  

 

 

   

 

 

   

 

 

 

A rollforward of acquired loans without deterioration of credit quality for the nine months ended September 30, 2013, the year ended December 31, 2012 and the nine months ended September 30, 2012 is shown below:

 

(Dollars in Thousands)

   September 30,
2013
    December 31,
2012
    September 30,
2012
 

Balance, January 1

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

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

     11,554        1,376        3,861   

Additions due to acquisitions

     —          51,368        51,367   

Other (loan payments, transfers, etc.)

     (53,870     (91,108     (72,755
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 186,286      $ 228,602      $ 249,439   
  

 

 

   

 

 

   

 

 

 

The following is a summary of changes in the accretable discounts of acquired loans during the nine months ended September 30, 2013, the year ended December 31, 2012 and the nine months ended September 30, 2012.

 

(Dollars in Thousands)

   September 30,
2013
    December 31,
2012
    September 30,
2012
 

Balance, January 1

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

Additions due to acquisitions

     —          9,863        9,863   

Accretion

     (36,552     (45,752     (36,241

Other activity, net

     50,703        23,050        16,210   
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 30,849      $ 16,698      $ 19,369   
  

 

 

   

 

 

   

 

 

 

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 nine months ended September 30, 2013, for the year ended December 31, 2012 and for the nine months ended September 30, 2012 are as follows:

 

(Dollars in Thousands)

   September 30,
2013
    December 31,
2012
    September 30,
2012
 

Balance, January 1

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

Indemnification asset recorded in acquisitions

     —          52,654        52,654   

Payments received from FDIC

     (58,240     (128,730     (97,399

Effect of change in expected cash flows on covered assets

     (19,721     (6,594     791   
  

 

 

   

 

 

   

 

 

 

Ending balance

   $ 81,763      $ 159,724      $ 198,440   
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents

NOTE 6 – WEIGHTED AVERAGE SHARES OUTSTANDING

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

 

     For the Three Months
Ended September 30,
     For the Nine Months
Ended September 30,
 
     2013      2012      2013      2012  
     (Share Data in
Thousands)
     (Share Data in
Thousands)
 

Basic shares outstanding

     23,901         23,819         23,883         23,800   

Plus: Dilutive effect of ISOs

     62         105         62         105   

Plus: Dilutive effect of Restricted grants

     353         49         353         49   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted shares outstanding

     24,316         23,973         24,298         23,954   
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 7 – OTHER BORROWINGS

The Company has, from time to time, utilized certain borrowing arrangements with various financial institutions to fund growth in earning assets or provide additional liquidity when appropriate spreads can be realized. At September 30, 2013 there was $5.0 million in outstanding borrowings with the Company’s correspondent banks. There were no outstanding borrowings with the Company’s correspondent banks at December 31, 2012 and September 30, 2012. The Company’s success with attracting and retaining retail deposits has allowed for very low dependence on more volatile non-deposit funding.

NOTE 8 – COMMITMENTS

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

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

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

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

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

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

 

(Dollars in Thousands)

   September 30,
2013
     December 31,
2012
     September 30,
2012
 

Commitments to extend credit

   $ 208,303       $ 180,733       $ 145,936   

Standby letters of credit

   $ 6,954       $ 6,788       $ 9,367   

 

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Table of Contents

NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income for the Company consists of changes in net unrealized gains and losses on investment securities available for sale and interest rate swap derivatives. The following tables present a summary of the accumulated other comprehensive income balances, net of tax, as of September 30, 2013 and 2012.

 

(Dollars in Thousands)

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

Balance, January 1, 2013

   $ (23   $ 6,630      $ 6,607   

Reclassification for gains included in net income

     —          (111     (111

Current year changes

     1,098        (8,125     (7,027
  

 

 

   

 

 

   

 

 

 

Balance, September 30, 2013

   $ 1,075      $ (1,606   $ (531
  

 

 

   

 

 

   

 

 

 

 

(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   

Reclassification for gains included in net income

     —          —           —     

Current year changes

     (976     1,017         41   
  

 

 

   

 

 

    

 

 

 

Balance, September 30, 2012

   $ (120   $  7,457       $ 7,337   
  

 

 

   

 

 

    

 

 

 

 

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Table of Contents

NOTE 10 – SEGMENT REPORTING

The following tables present selected financial information with respect to the Company’s reportable business segments for the three- and nine-month periods ended September 30 2013 and 2012.

 

     Three Months Ended
September 30, 2013
     Three Months Ended
September 30, 2012
 
     Retail
Banking
     Mortgage
Banking
     Total      Retail
Banking
     Mortgage
Banking
    Total  
     (Dollars in Thousands)  

Net interest income

   $ 28,089       $ 1,231       $ 29,320       $ 27,953       $ 285      $ 28,238   

Provision for loan losses

     2,920         —           2,920         6,540         —          6,540   

Noninterest income

     7,054         5,234         12,288         6,091         3,740        9,831   

Noninterest expense:

                

Salaries and employee benefits

     10,799         3,613         14,412         11,446         2,320        13,766   

Equipment and occupancy expenses

     3,029         120         3,149         3,190         150        3,340   

Data processing and telecommunications expenses

     2,908         164         30,72         2,510         89        2,599   

Other expenses

     7,473         643         8,116         8,706         399        9,105   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total noninterest expense

     24,209         4,540         28,749         25,852         2,958        28,810   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Income before income tax expense

     8,014         1,925         9,939         1,652         1,067        2,719   

Income tax expense

     2,588         674         3,262         443         373        816   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net income

     5,426         1,251         6,677         1,209         694        1,903   

Less preferred stock dividends

     443         —           443         827         —          827   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net income available to common shareholders

   $ 4,983       $ 1,251       $ 6,234       $ 382       $ 694      $ 1,076   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 2,707,200       $ 111,302       $ 2,818,502       $ 2,947,004       $ 2,379      $ 2,949,383   

Stockholders’ equity

     250,863         39,493         290,356         299,221         (15     299,206   
     Nine Months Ended
September 30, 2013
     Nine Months Ended
September 30, 2012
 
     Retail
Banking
     Mortgage
Banking
     Total      Retail
Banking
     Mortgage
Banking
    Total  
     (Dollars in Thousands)  

Net interest income

   $ 84,372       $ 2,762       $ 87,134       $ 84,243       $ 603      $ 84,846   

Provision for loan losses

     10,008         —           10,008         26,647         —          26,647   

Noninterest income

     20,333         14,699         35,032         37,749         8,221        45,970   

Noninterest expense:

                

Salaries and employee benefits

     32,314         9,285         41,599         32,435         4,902        37,337   

Equipment and occupancy expenses

     8,575         483         9,058         9,250         305        9,555   

Data processing and telecommunications expenses

     8,013         465         8,478         7,222         207        7,429   

Other expenses

     22,807         2,379         25,186         34,470         888        35,358   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total noninterest expense

     71,709         12,612         84,321         83,377         6,302        89,679   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Income before income tax expense

     22,988         4,849         27,837         11,968         2,522        14,490   

Income tax expense

     7,500         1,697         9,197         3,845         882        4,727   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net income

     15,488         3,152         18,640         8,123         1,640        9,763   

Less preferred stock dividends

     1,326         —           1,326         2,459         —          2,459   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Net income available to common shareholders

   $ 14,162       $ 3,152       $ 17,314       $ 5,664       $ 1,640      $ 7,304   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

36


Table of Contents

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

Cautionary Note Regarding Any Forward-Looking Statements

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

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

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

Overview

The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of September 30, 2013 as compared to December 31, 2012 and operating results for the three- and nine-month periods ended September 30, 2013 and 2012. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

 

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Table of Contents

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

 

(in thousands, except share data, taxable
equivalent)
  Third
Quarter 2013
    Second
Quarter 2013
    First
Quarter 2013
    Fourth
Quarter 2012
    Third
Quarter 2012
    For Nine Months Ended  
            September 30,
2013
    September 30,
2012
 

Results of Operations:

             

Net interest income

  $ 29,320      $ 29,476      $ 28,338      $ 29,559      $ 28,238      $ 87,134      $ 84,846   

Net interest income (tax equivalent)

    29,542        29,666        28,695        29,898        28,420        87,902        85,134   

Provision for loan losses

    2,920        4,165        2,923        4,442        6,540        10,008        26,647   

Non-interest income

    12,288        11,384        11,360        11,904        9,831        35,032        45,970   

Non-interest expense

    28,749        26,688        28,884        29,791        28,810        84,321        89,679   

Income tax expense

    3,262        3,329        2,606        2,558        816        9,197        4,727   

Preferred stock dividends

    443        442        441        1,118        827        1,326        2,459   

Net income available to common shareholders

    6,234        6,236        4,844        3,554        1,076        17,314        7,304   

Selected Average Balances:

             

Loans, net of unearned income

  $ 1,625,560      $ 1,572,544      $ 1,488,326      $ 1,471,065      $ 1,430,227      $ 1,562,646      $ 1,408,642   

Covered loans

    427,482        444,616        491,691        519,892        574,897        454,361        564,995   

Investment securities

    312,541        321,582        340,564        352,790        364,786        325,430        364,390   

Earning assets

    2,439,771        2,397,834        2,428,720        2,503,381        2,502,908        2,422,786        2,498,927   

Assets

    2,806,799        2,820,863        2,875,274        2,985,116        2,935,715        2,837,758        2,963,978   

Deposits

    2,439,150        2,448,171        2,511,511        2,604,320        2,616,866        2,466,013        2,606,551   

Common shareholders’ equity

    246,489        251,240        251,214        240,787        242,614        249,630        242,961   

Period-End Balances:

             

Mortgage loans held for sale

  $ 69,634      $ 62,580      $ 42,332      $ 48,786      $ 29,021      $ 69,634      $ 29,021   

Loans, net of unearned income

    1,589,267        1,555,827        1,492,753        1,450,635        1,439,862        1,589,267        1,439,862   

Covered loans

    417,649        443,517        460,724        507,712        546,234        417,649        546,234   

Earning assets

    2,462,697        2,421,996        2,401,043        2,547,719        2,443,040        2,462,697        2,443,040   

Total assets

    2,818,502        2,808,675        2,861,651        3,019,052        2,949,383        2,818,502        2,949,383   

Total deposits

    2,443,421        2,443,103        2,489,973        2,624,663        2,580,117        2,443,421        2,580,117   

Common shareholders’ equity

    262,418        259,932        255,969        251,355        247,999        262,418        247,999   

Per Common Share Data:

             

Earnings per share – basic

  $ 0.26      $ 0.26      $ 0.20      $ 0.15      $ 0.05      $ 0.72      $ 0.31   

Earnings per share – diluted

    0.26        0.26        0.20        0.15        0.04        0.71        0.30   

Common book value per share

    10.98        10.88        10.72        10.56        10.41        10.98        10.41   

End of period shares outstanding

    23,907,509        23,894,327        23,875,680        23,799,768        23,819,144        23,907,509        23,819,144   

Weighted average shares outstanding

             

Basic

    23,900,665        23,878,898        23,867,691        23,815,583        23,819,144        23,882,539        23,800,121   

Diluted

    24,315,821        24,287,628        24,246,346        23,857,095        23,973,369        24,297,695        23,954,346   

Market Price:

             

High closing price

  $ 19.79      $ 16.94      $ 14.51      $ 12.71      $ 12.88        19.79        13.40   

Low closing price

    17.35        13.16        12.79        10.50        11.27        12.79        10.34   

Closing price for quarter

    18.38        16.85        14.35        12.49        12.59        18.38        12.59   

Average daily trading volume

    75,545        53,403        51,887        48,295        45,543        60,457        54,325   

Cash dividends per share

    —          —          —          —          —          —          —     

Stock dividend

    —          —          —          —          —          —          —     

Closing price to book value

    1.67        1.55        1.34        1.18        1.21        1.67        1.21   

Performance Ratios:

             

Return on average assets

    0.94     0.95     0.75     0.62     0.26     0.89     0.44

Return on average common equity

    10.75     10.66     8.53     7.72     3.12     10.11     5.38

Average loans to average deposits

    84.17     82.39     78.84     76.45     76.62     81.79     75.72

Average equity to average assets

    9.78     9.93     9.70     9.39     10.01     9.78     9.92

Net interest margin (tax equivalent)

    4.80     4.96     4.79     4.75     4.52     4.85     4.55

Efficiency ratio (tax equivalent)

    69.09     65.32     72.76     71.85     75.68     69.02     68.55

 

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Results of Operations for the Three Months Ended September 30, 2013 and 2012

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $6.2 million, or $0.26 per diluted share, for the quarter ended September 30, 2013, compared to $1.1 million, or $0.04 per diluted share, for the same period in 2012. The Company’s return on average assets and average shareholders’ equity increased in the third quarter of 2013 to 0.94% and 10.75%, respectively, compared to 0.26% and 3.12%, respectively, in the third quarter of 2012. The increase in earnings and profitability during the quarter was primarily due to increased noninterest income and reduced credit costs. The Company’s mortgage banking activities have had a significant impact on the overall financial results of the Company. Below is a more detailed analysis of the retail banking activities and mortgage banking activities of the Company during the third quarter of 2013 and 2012, respectively.

 

     Retail Banking      Mortgage Banking      Total  
     (in thousands)  

For the three months ended September 30, 2013:

        

Net interest income

   $ 28,089       $ 1,231       $ 29,320   

Provision for loan losses

     2,920         —           2,920   

Non-interest income

     7,054         5,234         12,288   

Non-interest expense

        

Salaries and employee benefits

     10,799         3,613         14,412   

Occupancy

     3,029         120         3,149   

Data processing

     2,908         164         3,072   

Other expenses

     7,473         643         8,116   
  

 

 

    

 

 

    

 

 

 

Total non-interest expense

     24,209         4,540         28,749   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

     8,014         1,925         9,939   

Income tax expense

     2,588         674         3,262   

Net income

     5,426         1,251         6,677   

Preferred stock dividends

     443         —           443   
  

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 4,983       $ 1,251       $ 6,234   
  

 

 

    

 

 

    

 

 

 

 

     Retail Banking      Mortgage Banking      Total  
     (in thousands)  

For the three months ended September 30, 2012:

        

Net interest income

   $ 27,953       $ 285       $ 28,238   

Provision for loan losses

     6,540         —           6,540   

Non-interest income

     6,091         3,740         9,831   

Non-interest expense

        

Salaries and employee benefits

     11,446         2,320         13,766   

Occupancy

     3,190         150         3,340   

Data processing

     2,510         89         2,599   

Other expenses

     8,706         399         9,105   
  

 

 

    

 

 

    

 

 

 

Total non-interest expense

     25,852         2,958         28,810   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

     1,652         1,067         2,719   

Income tax expense

     443         373         816   

Net income

     1,209         694         1,903   

Preferred stock dividends

     827         —           827   
  

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 382       $ 694       $ 1,076   
  

 

 

    

 

 

    

 

 

 

Net Interest Income and Margins

On a tax equivalent basis, net interest income for the third quarter of 2013 was $29.5 million, an increase of $1.1 million compared to $28.4 million reported in the same quarter in 2012. 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 was 4.80% during the third quarter of 2013, compared to 4.96% during the second quarter of 2013 and 4.52% during the third 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.

 

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Total interest income, on a tax equivalent basis, during the third quarter of 2013 was $32.0 million compared to $31.8 million in the same quarter of 2012. Yields on earning assets increased slightly to 5.20%, compared to 5.06% reported in the third quarter of 2012. During the third quarter of 2013, loans comprised 84.1% of earning assets, compared to 81.3% in the same quarter of 2012. Increased lending activities have provided opportunities to begin to grow the legacy loan portfolio. Yields on legacy loans decreased to 5.36% in the third quarter of 2013, compared to 5.68% in the same period of 2012. Covered loan yields increased from 6.19% in the third quarter of 2012 to 7.65% in the third quarter of 2013. Management anticipates improving economic conditions and increased loan demand will provide consistent interest income.

Total funding costs declined to 0.39% in the third quarter of 2013, compared to 0.51% during the third quarter of 2012. Interest-bearing deposit costs decreased from 0.46% in the third quarter of 2012 and 0.42% in the second quarter of 2013 to 0.41% in the third quarter of 2013. Ongoing efforts to maintain the percentage of funding from transaction deposits have succeeded such that non-CD deposits averaged 73.2% of total deposits in the third quarter of 2013 compared to 68.0% during the third quarter of 2012. Lower costs on deposits were due mostly to the lower rate environment and the improvement in the deposit mix. 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 third quarter of 2013 and 2012 are shown below:

 

(Dollars in Thousands)    September 30, 2013     September 30, 2012  
     Average
Balance
     Average
Cost
    Average
Balance
     Average
Cost
 

NOW

   $ 573,088         0.17   $ 593,204         0.20

MMDA

     639,304         0.38     631,231         0.39

Savings

     104,498         0.11     102,129         0.12

Retail CDs < $100,000

     290,771         0.55     365,807         0.79

Retail CDs > $100,000

     349,931         0.72     430,677         0.91

Brokered CDs

     12,970         3.09     41,799         3.16
  

 

 

      

 

 

    

Interest-bearing deposits

   $ 1,970,562         0.41   $ 2,164,847         0.55
  

 

 

      

 

 

    

Provision for Loan Losses and Credit Quality

The Company’s provision for loan losses during the third quarter of 2013 amounted to $2.9 million, compared to $4.2 million in the second quarter of 2013 and $6.5 million in the third quarter of 2012. Although the Company has experienced improving trends in criticized and classified assets for several quarters, provision for loan losses continues to be required to account for continued devaluation of real estate collateral. At September 30, 2013, classified loans still accruing totaled $31.3 million, compared to $34.4 million at December 31, 2012 and $36.8 million at September 30, 2012. Non-accrual loans at September 30, 2013 totaled $31.7 million, compared to $38.9 million reported at December 31, 2012 and $38.2 million reported at September 30, 2012.

At September 30, 2013, other real estate owned (excluding covered OREO) totaled $38.0 million, compared to $39.9 million at June 30, 2013 and $37.3 million at September 30, 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 three to six months, the liquidation of properties occurs between 85% and 100% of current book value. Certain properties, mostly raw land and subdivision lots, have extended marketing periods because of excessive inventory and record low home building activity. At the end of the third quarter of 2013, total non-performing assets decreased to 2.47% of total assets, compared to 2.61% at December 31, 2012 and 2.56% at September 30, 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 third quarter of 2013 were $2.8 million, or 0.70% of loans on an annualized basis, compared to $6.0 million, or 1.65% of loans, in the third quarter of 2012. The Company’s allowance for loan losses at September 30, 2013 was $23.9 million, or 1.50% of non-covered loans, compared to $25.9 million, or 1.80% of non-covered loans, at September 30, 2012.

Non-interest Income

Total non-interest income for the third quarter of 2013 was $12.3 million, compared to $9.8 million in the third 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 production. Service charges on deposit accounts in the third quarter of 2013 were $4.9 million, compared to $4.7 million in the second quarter of 2013 and $5.1 million in the third quarter of 2012.

 

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Table of Contents

Non-interest Expense

Total non-interest expenses for the third quarter of 2013 decreased slightly to $28.7 million, compared to $28.8 million in the same quarter in 2012. Salaries and benefits increased $646,000 compared to the third quarter of 2012, due primarily to the growth in support costs and commissions in the mortgage division, which is proportionate to the growth in mortgage revenues. Excluding compensation costs in the mortgage operations, salaries and benefits increased $136,000 in the third quarter of 2013, compared to the third quarter of 2012. Occupancy and equipment expense decreased from $3.3 million in the third quarter of 2012 to $3.1 million in the third quarter of 2013. Data processing and telecommunications expenses increased to $3.1 million for the third quarter of 2013 from $2.6 million for the same period in 2012. Credit related expenses, including problem loan and OREO expense and OREO write-downs and losses, decreased to $3.0 million in the third quarter of 2013, compared to $3.7 million in the third quarter of 2012 due to improved economic conditions.

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 third quarter of 2013, the Company reported income tax expense of $3.3 million, compared to $816,000 in the same period of 2012. The Company’s effective tax rate for the three months ending September 30, 2013 and 2012 was 32.8% and 30.0%, respectively.

Results of Operations for the Nine Months Ended September 30, 2013 and 2012

Ameris reported net income available to common shareholders of $17.3 million, or $0.71 per diluted share, for the nine months ended September 30, 2013, compared to $7.3 million, or $0.30 per diluted share, for the same period in 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 during the first nine months of 2013 and 2012, respectively.

 

     Retail Banking      Mortgage Banking      Total  
     (in thousands)  

For the nine months ended September 30, 2013:

        

Net interest income

   $ 84,372       $ 2,762       $ 87,134   

Provision for loan losses

     10,008         —           10,008   

Non-interest income

     20,333         14,699         35,032   

Non-interest expense

        

Salaries and employee benefits

     32,314         9,285         41,599   

Occupancy

     8,575         483         9,058   

Data processing

     8,013         465         8,478   

Other expenses

     22,807         2,379         25,186   
  

 

 

    

 

 

    

 

 

 

Total non-interest expense

     71,709         12,612         84,321   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

     22,988         4,849         27,837   

Income tax expense

     7,500         1,697         9,197   

Net income

     15,488         3,152         18,640   

Preferred stock dividends

     1,326         —           1,326   
  

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 14,162       $ 3,152       $ 17,314   
  

 

 

    

 

 

    

 

 

 

 

     Retail Banking      Mortgage Banking      Total  
     (in thousands)  

For the nine months ended September 30, 2012:

        

Net interest income

   $ 84,243       $ 603       $ 84,846   

Provision for loan losses

     26,647         —           26,647   

Non-interest income

     37,749         8,221         45,970   

Non-interest expense

        

Salaries and employee benefits

     32,435         4,902         37,337   

Occupancy

     9,250         305         9,555   

Data processing

     7,222         207         7,429   

Other expenses

     34,470         888         35,358   
  

 

 

    

 

 

    

 

 

 

Total non-interest expense

     83,377         6,302         89,679   
  

 

 

    

 

 

    

 

 

 

Income before income taxes

     11,968         2,522         14,490   

Income tax expense

     3,845         882         4,727   

Net income

     8,123         1,640         9,763   

Preferred stock dividends

     2,459         —           2,459   
  

 

 

    

 

 

    

 

 

 

Net income available to common shareholders

   $ 5,664       $ 1,640       $ 7,304   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Interest Income

Interest income, on a tax equivalent basis, for the nine months ended September 30, 2013 was $95.3 million, a decrease of $1.9 million when compared to $97.2 million for the same period in 2012. Average earning assets for the nine-month period decreased $76.1 million to $2.42 billion as of September 30, 2013, compared to $2.50 billion as of September 30, 2012. Yield on average earning assets was 5.26% for the nine months ended September 30, 2013, compared to 5.20% in the first nine months of 2012. Earning assets acquired in connection with the Company’s FDIC-assisted acquisitions have allowed the Company to maintain rather level amounts of earning assets while interest rate floors on individual customer loans have allowed the Company to keep the yield on loans from falling precipitously in the current rate environment. Additionally, yields on the acquired assets have been much stronger than the Company’s other earning assets, helping boost the Company’s overall yield on earning assets.

Interest Expense

Total interest expense for the nine months ended September 30, 2013 amounted to $7.4 million, reflecting a $4.7 million decrease from the $12.1 million expense recorded in the same period of 2012. During the nine-month period ended September 30, 2013, the Company’s funding costs declined to 0.39% from 0.60% reported in 2012. The majority of the decline in interest expense and costs relates to improvements in the cost of the Company’s retail time deposits, which fell to 0.75% in the nine-month period ending September 30, 2013, compared to 0.98% in the same period in 2012.

Net Interest Income

Level yields on earning assets have combined with reduced funding costs to result in material improvements in net interest income. For the year-to-date period ending September 30, 2013, the Company reported $87.9 million of net interest income on a tax equivalent basis, compared to $85.1 million of net interest income for the same period in 2012. The Company’s net interest margin increased to 4.85% in the nine-month period ending September 30, 2013, compared to 4.55% in the same period in 2012.

Provision for Loan Losses

The provision for loan losses decreased to $10.0 million for the nine months ended September 30, 2013, compared to $26.6 million in the same period in 2012, due to charges related to the bulk sale in the first quarter of 2012. Non-performing assets totaled $69.7 million at September 30, 2013, compared to $75.6 million at September 30, 2012. For the nine-month period ended September 30, 2013, the Company had net charge-offs totaling $8.5 million, compared to $33.6 million for the same period in 2012. Annualized net charge-offs as a percentage of loans decreased to 0.71% during the first nine months of 2013, compared to 3.12% during the first nine months of 2012. This decrease was due to the Company’s bulk sale of certain non-performing assets during the first quarter of 2012.

Non-interest Income

Non-interest income for the first nine months of 2013 was $35.0 million, compared to $46.0 million in the same period in 2012. Excluding non-recurring gains on investment securities and an FDIC-assisted acquisition, the Company’s non-interest income totaled $34.9 million, an increase of $8.9 million, compared to $25.9 million in the same period in 2012. Service charges on deposit accounts increased approximately $203,000 to $14.5 million in the first nine months of 2013 compared to $14.3 million in the same period in 2012. Income from mortgage banking activity increased from $8.2 million in the first nine months of 2012 to $14.7 million in the first nine months of 2013, due to increased number of mortgage bankers and higher level of production.

Non-interest Expense

Total operating expenses for the first nine months of 2013 decreased to $84.3 million, compared to $89.7 million in the same period in 2012. Salaries and benefits increased $4.3 million when compared to the first nine months of 2012, mostly due to the growth in the mortgage division. Occupancy and equipment expenses for the first nine months of 2013 amounted to $9.1 million, representing an increase of $497,000 from the same period in 2012. Data processing and telecommunications expenses increased during the first nine months of 2013 from $7.4 million in the first nine months of 2012 to $8.5 million in the first nine months of 2013. Credit related expenses, including problem loan and OREO expense and OREO write-downs and losses, decreased to $10.2 million in the first nine months of 2013, compared to $19.9 million in the first nine months of 2012, due to the Company’s bulk sale of certain non-performing assets in the first quarter of 2012.

Income Taxes

In the first nine months of 2013, the Company recorded income tax expense of $9.2 million, compared to $4.7 million in the same period of 2012. The Company’s effective tax rate for the nine months ended September 30, 2013 and 2012 was 33.0% and 32.6%, respectively.

 

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Table of Contents

Financial Condition as of September 30, 2013

Securities

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

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

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

Management evaluates securities for other-than-temporary impairment at least 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 September 30, 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 September 30, 2013, these investments are not considered impaired on an other-than temporary basis.

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  

September 30, 2013:

             

U.S. government agencies

   $ 14,945       $ 13,917         1.85     5.91       $ —     

State and municipal securities

     112,643         112,939         3.62     5.58         5,104   

Corporate debt securities

     10,314         9,738         6.51     7.14         —     

Mortgage-backed securities

     176,818         175,654         2.67     4.05         27,818   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

   $ 314,720       $ 312,248         3.11     4.79       $ 32,922   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

September 30, 2012:

             

U.S. government agencies

   $ 8,606       $ 8,895         2.36     1.91       $ —     

State and municipal securities

     106,541         111,742         3.95     6.02         9,994   

Corporate debt securities

     11,793         11,495         6.73     6.92         1,250   

Mortgage-backed securities

     222,641         228,919         2.34     2.42         71,773   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total debt securities

   $ 349,581       $ 361,051         2.98     3.66       $ 83,017   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Loans and Allowance for Loan Losses

At September 30, 2013, gross loans outstanding (including covered loans and mortgage loans held for sale) were $2.08 billion, an increase from $2.01 billion reported at December 31, 2012 and $2.02 billion reported at September 30, 2012. Non-covered loans increased $138.6 million to $1.59 billion during the first nine months of 2013, compared to $1.45 billion at December 31, 2012 and $1.44 billion at September 30, 2012. Covered loans decreased $128.6 million, from $546.2 million at September 30, 2012 to $417.6 million at September 30, 2013. Mortgage loans held for sale increased to $69.6 million at September 30, 2013, compared to $48.8 million at December 31, 2012 and $29.0 million at September 30, 2012.

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.

 

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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.

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 nine-month period ended September 30, 2013, the Company recorded net charge-offs totaling $8.5 million, compared to $33.6 million for the period ended September 30, 2012. The provision for loan losses for the nine months ended September 30, 2013 decreased to $10.0 million, compared to $26.6 million during the nine-month period ended September 30, 2012. Increased levels of charge-offs and provision expense during the first nine months of 2012 relates almost entirely to the Company’s bulk sale of non-performing loans during the first quarter of 2012. The following table reflects the recorded investment in the loans sold in the bulk sale, the additional provision for loan loss recorded and the charge-offs recorded by class of financing receivable. All of the following loans were legacy loans.

 

Loan Type

   Recorded
Investment
     Additional
Provision
Recorded
    Charge-offs  

CFIA

   $ 120,524       $ (17,721   $ (78,245

Raw Land

   $ 867,662       $ (155,259   $ (553,501

CRE – Golf Course

   $ 1,068,940       $ (315,040   $ (607,730

CRE – Motel

   $ 6,937,996       $ (2,375,267   $ (4,587,996

CRE – Office

   $ 2,684,987       $ (722,458   $ (1,367,362

CRE – Retail

   $ 1,958,708       $ (604,991   $ (899,183

CRE – Industrial

   $ 2,313,858       $ (1,110,561   $ (1,427,109

Multi-Family

   $ 1,450,017       $ (439,251   $ (495,657

Residential Real Estate

   $ 518,664       $ (149,673   $ (315,637
  

 

 

    

 

 

   

 

 

 

Totals

   $ 17,921,356       $ (5,890,221   $ (10,332,420
  

 

 

    

 

 

   

 

 

 

At the end of the third quarter of 2013, the allowance for loan losses totaled $23.9 million, or 1.50% of total legacy loans, compared to $23.6 million, or 1.63% of total legacy loans, at December 31, 2012 and $25.9 million, or 1.80% of total legacy loans, at September 30, 2012. The decrease in the allowance for loan losses as a percentage of non-covered loans reflects the improving credit quality trends in the loan portfolio.

 

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Table of Contents

The following table presents an analysis of the allowance for loan losses for the nine months ended September 30, 2013 and 2012:

 

(Dollars in Thousands)

   September 30,
2013
    September 30,
2012
 

Balance of allowance for loan losses at beginning of period

   $ 23,593      $ 35,156   

Provision charged to operating expense

     8,747        24,360   

Charge-offs:

    

Commercial, financial and agricultural

     1,216        889   

Real estate – residential

     3,430        6,642   

Real estate – commercial and farmland

     2,873        18,199   

Real estate – construction and development

     1,598        7,819   

Consumer installment

     576        618   

Other

     —         —    
  

 

 

   

 

 

 

Total charge-offs

     9,693        34,167   
  

 

 

   

 

 

 

Recoveries:

    

Commercial, financial and agricultural

     340        101   

Real estate – residential

     520        199   

Real estate – commercial and farmland

     18        32   

Real estate – construction and development

     88        23   

Consumer installment

     241        197   

Other

     —         —    
  

 

 

   

 

 

 

Total recoveries

     1,207        552   
  

 

 

   

 

 

 

Net charge-offs

     8,486        33,615   
  

 

 

   

 

 

 

Balance of allowance for loan losses at end of period

   $ 23,854      $ 25,901   
  

 

 

   

 

 

 

Net annualized charge-offs as a percentage of average loans

     0.71     3.12

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

     1.50     1.80

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 $417.6 million, $507.7 million and $546.2 million at September 30, 2013, December 31, 2012 and September 30, 2012, respectively. OREO that is covered by the loss-sharing agreements with the FDIC totaled $52.6 million, $88.3 million and $88.9 million at September 30, 2013, December 31, 2012 and September 30, 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 September 30, 2013, December 31, 2012 and September 30, 2012 was $81.8 million, $159.7 million and $198.4 million, respectively.

The Bank 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 nine months ended September 30, 2013, the year ended December 31, 2012 and the nine months ended September 30, 2012, the Company recorded provision for loan loss expense of $1.3 million, $2.6 million and $2.3 million, respectively, to account for losses where the initial estimate of cash flows was found to be excessive on loans acquired in FDIC-assisted transactions. If the Company determines that a loan or group of loans has improved from its initial assessment of fair value, then the increase in cash flows over those expected at the acquisition date is recognized as interest income prospectively.

 

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

 

(Dollars in Thousands)

   September 30,
2013
     December 31,
2012
     September 30,
2012
 

Commercial, financial and agricultural

   $ 27,768      $ 32,606       $ 37,167  

Real estate – construction and development

     50,702        70,184         73,356   

Real estate – commercial and farmland

     237,086        278,506         298,903  

Real estate – residential

     101,146        125,056         135,154  

Consumer installment

     947        1,360         1,654  
  

 

 

    

 

 

    

 

 

 
   $ 417,649      $ 507,712       $ 546,234  
  

 

 

    

 

 

    

 

 

 

Non-Performing Assets

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

As of September 30, 2013, nonaccrual or impaired loans totaled $31.7 million, a decrease of approximately $7.2 million since December 31, 2012. The decrease in nonaccrual loans is due to the success in the foreclosure and resolution process and a significant slowdown in the formation of new problem credits. Non-performing assets as a percentage of total assets were 2.47%, 2.61% and 2.58% at September 30, 2013, December 31, 2012 and September 30, 2012, respectively.

Non-performing assets at September 30, 2013, December 31, 2012 and September 30, 2012 were as follows:

 

(Dollars in Thousands)

   September 30,
2013
     December 31,
2012
     September 30,
2012
 

Total nonaccrual loans

   $ 31,720       $ 38,885       $ 38,225   

Other real estate owned and repossessed collateral

     37,978         39,850         37,325   

Accruing loans delinquent 90 days or more

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total non-performing assets

   $ 69,698       $ 78,735       $ 75,550   
  

 

 

    

 

 

    

 

 

 

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 September 30, 2013, December 31, 2012 and September 30, 2012:

 

     September 30,
2013
     December 31,
2012
     September 30,
2012
 
     (in thousands)  

Loan class:

   #    Balance      #    Balance      #    Balance  

Commercial, financial & agricultural

   4    $ 521       5    $ 802       5    $ 804   

Real estate – construction & development

   8      1,926       5      1,735       4      1,481   

Real estate – commercial & farmland

   16      6,693       16      8,947       15      9,540   

Real estate – residential

   35      7,871       28      7,254       27      8,068   

Consumer installment

   1      13       1      6       —        —     
  

 

  

 

 

    

 

  

 

 

    

 

  

 

 

 

Total

   64    $ 17,024       55    $ 18,744       51    $ 19,893   
  

 

  

 

 

    

 

  

 

 

    

 

  

 

 

 

 

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Table of Contents

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 September 30, 2013, the Company exhibited a concentration in CRE loan category based on Federal Reserve Call codes. The primary risks of CRE lending are:

 

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

 

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

 

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

The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of September 30, 2013 and December 31, 2012. The loan categories and concentrations below are based on Federal Reserve Call codes and include “covered” loans.

 

(Dollars in Thousands)    September 30, 2013     December 31, 2012  
     Balance      % of Total
Loans
    Balance      % of Total
Loans
 

Construction and development loans

   $ 182,979         9   $ 184,383         9

Multi-family loans

     71,493         4     60,111         3

Nonfarm non-residential loans

     964,742         48     950,910         49
  

 

 

    

 

 

   

 

 

    

 

 

 

Total CRE Loans

     1,219,214         61     1,195,404         61

All other loan types

     787,702         39     762,943         39
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Loans

   $ 2,006,916         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 September 30, 2013 and December 31, 2012:

 

     Internal
Limit
    September 30,
2013
    December 31,
2012
 
       Actual     Actual  

Construction and development

     100     63     66

Commercial real estate

     300     232     237

Short-Term Investments

The Company’s short-term investments are comprised of federal funds sold and interest-bearing balances. At September 30, 2013, the Company’s short-term investments were $73.9 million, compared to $193.7 million and $66.9 million at December 31, 2012 and September 30, 2012, respectively. At September 30, 2013, all of the balance was comprised of interest-bearing balances, the majority of which were at the Federal Reserve Bank of Atlanta.

 

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Table of Contents

Derivative Instruments and Hedging Activities

The Company had a cash flow hedge with a notional amount of $37.1 million at September 30, 2013, December 31, 2012 and September 30, 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 $972,000, $3.0 million and $3.2 million at September 30, 2013, December 31, 2012 and September 30, 2012, respectively. The Company also had forward contracts with a fair value of approximately $2.5 million, $1.2 million and $531,000 at September 30, 2013, December 31, 2012 and September 30, 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 earnings. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

Capital

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

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

 

  a) The “Leverage Ratio” is defined as Tier 1 capital to average assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a leverage ratio greater than or equal to 4.00%. For a bank to be considered “well capitalized” a bank 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” a bank 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” a bank must maintain a total capital ratio greater than or equal to 10.00%.

As of September 30, 2013, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. On July 2, 2013, the Federal Reserve Board adopted a new regulatory capital framework as a part of the Basel III regulatory capital reforms. Management currently believes that Ameris will be in compliance with the revised capital requirements when they become applicable to the Company on January 1, 2015. The following table sets forth the regulatory capital ratios of Ameris at September 30, 2013, December 31, 2012 and September 30, 2012.

 

     September 30,
2013
    December 31,
2012
    September 30,
2012
 

Leverage Ratio (tier 1 capital to average assets)

      

Consolidated

     11.73     10.34     11.33

Ameris Bank

     11.65        10.30        11.30   

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

      

Consolidated

     18.25        17.49        18.91   

Ameris Bank

     18.13        17.40        18.88   

Total Capital Ratio (total capital to risk weighted assets)

      

Consolidated

     19.50        18.74        20.16   

Ameris Bank

     19.38        18.65        20.13   

 

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Table of Contents

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.

Cumulative dividends on the Preferred Shares will continue to accrue on the liquidation preference at a rate of 5% per annum for the first five years from initial issuance 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 Board of Governors of the Federal Reserve System, the Preferred Shares are redeemable at the option of the Company at 100% of their liquidation preference.

Interest Rate Sensitivity and Liquidity

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

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

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

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

Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of 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. At September 30, 2013, the Company had $5.0 million of outstanding borrowings with correspondent banks. There were no outstanding borrowings with the Company’s correspondent banks at December 31, 2012 and September 30, 2012.

 

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Table of Contents

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

 

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

Investment securities available for sale to total deposits

     12.78     12.94     13.01     13.22     13.99

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

     65.04     63.68     59.95     55.27     55.81

Interest-earning assets to total assets

     87.38     86.23     83.90     84.39     82.83

Interest-bearing deposits to total deposits

     80.54     80.54     80.28     80.54     82.00

 

(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 September 30, 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 September 30, 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 $2.5 million at September 30, 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 September 30, 2013, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

The following risk factor is in addition to the risk factors disclosed in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012:

We face additional risks due to our increased mortgage banking activities that could negatively impact net income and profitability.

We sell substantially all of the mortgage loans that we originate. The sale of these loans generates non-interest income and can be a source of liquidity for Ameris Bank. Disruption in the secondary market for residential mortgage loans as well as continued declines in real estate values could result in one or more of the following:

 

    our inability to sell mortgage loans on the secondary market, which could negatively impact our liquidity position;

 

    continued declines in real estate values could decrease the potential of mortgage originations, which could negatively impact our earnings;

 

    if it is determined that loans were made in breach of our representations and warranties to the secondary market, we could incur losses associated with the loans;

 

    increased compliance requirements could result in higher compliance costs, higher foreclosure proceedings or lower loan origination volume, all which could negatively impact future earnings; and

 

    a rise in interest rates could cause a decline in mortgage originations, which could negatively impact our earnings.

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.

 

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SIGNATURE

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

 

Date: November 8, 2013     AMERIS BANCORP
   

/s/ Dennis J. Zember Jr.

   

Dennis J. Zember Jr., Executive Vice President and

Chief Financial Officer (duly authorized signatory

and principal accounting and financial officer)

 

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EXHIBIT INDEX

 

Exhibit
No.

  

Description

    3.1    Articles of Incorporation of Ameris Bancorp, as amended (incorporated by reference to Exhibit 2.1 to Ameris Bancorp’s Regulation A Offering Statement on Form 1-A filed with the Commission on August 14, 1987).
    3.2    Amendment to Amended Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1.1 to Ameris Bancorp’s Form 10-K filed with the Commission on March 28, 1996).
    3.3    Amendment to Amended Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 4.3 to Ameris Bancorp’s Registration Statement on Form S-4 filed with the Commission on July 17, 1996).
    3.4    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.5 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 25, 1998).
    3.5    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 26, 1999).
    3.6    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.9 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 31, 2003).
    3.7    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on December 1, 2005).
    3.8    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on November 21, 2008).
    3.9    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on June 1, 2011).
    3.10    Amended and Restated Bylaws of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on March 14, 2005).
  10.1    Loan Agreement dated as of August 28, 2013 by and between Ameris Bancorp and NexBank SSB (incorporated by reference to Exhibit 10.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on August 29, 2013).
  10.2    Revolving Promissory Note dated as of August 28, 2013 issued by Ameris Bancorp to NexBank SSB (incorporated by reference to Exhibit 10.2 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on August 29, 2013).
  10.3    Pledge and Security Agreement dated as of August 28, 2013 by and between Ameris Bancorp and NexBank SSB (incorporated by reference to Exhibit 10.3 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on August 29, 2013).
  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 September 30, 2013, formatted as interactive data files in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Income; (iii) Consolidated Statements of Changes in Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.

 

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