Edgar Filing: Ameris Bancorp

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if smaller reporting company)

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014

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

Commission File Number: 001-13901

LOGO

AMERIS BANCORP

(Exact name of registrant as specified in its charter)


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

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

(Address of principal executive offices)

(229) 890-1111

(Registrant’s telephone number)

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

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

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

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

There were 25,158,183 shares of Common Stock outstanding as of April 30, 2014.

AMERIS BANCORP

TABLE OF CONTENTS


		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at March 31, 2014, December 31, 2013 and March 31, 2013		3

	Consolidated Statements of Earnings and Comprehensive Income for the Three Months Ended March 31, 2014 and 2013		4

	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2014 and 2013		5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013		6

	Notes to Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		52

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		64

Item 4.	Controls and Procedures		64

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		65

Item 1A.	Risk Factors		65

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		65

Item 3.	Defaults Upon Senior Securities		65

Item 4.	Mine Safety Disclosures		65

Item 5.	Other Information		65

Item 6.	Exhibits		65

Signatures			65

Item 1.

Financial Statements

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)


	March 31, 2014			December 31, 2013			March 31, 2013
	(Unaudited)			(Audited)			(Unaudited)
Assets
Cash and due from banks	$	71,387		$	62,955		$	50,487
Federal funds sold and interest-bearing accounts		48,677			204,984			81,205
Investment securities available for sale, at fair value		456,713			486,235			324,029
Other investments		9,322			16,828			5,528
Mortgage loans held for sale		51,693			67,278			42,332
Loans, net of unearned income		1,695,382			1,618,454			1,492,753
Purchased loans not covered by FDIC loss share agreements (“purchased non-covered loans”)		437,269			448,753			—
Purchased loans covered by FDIC loss share agreements (“covered loans”)		372,694			390,237			460,724
Less: allowance for loan losses		22,744			22,377			23,382

Loans, net		2,482,601			2,435,067			1,930,095

Other real estate owned		33,839			33,351			40,434
Purchased, non-covered other real estate owned		3,864			4,276			—
Covered other real estate owned		42,636			45,893			77,915

Total other real estate owned		80,339			83,520			118,349

Premises and equipment, net		87,430			103,188			72,340
FDIC loss-share receivable		53,181			65,441			160,979
Intangible assets		5,477			6,009			2,676
Goodwill		35,049			35,049			956
Cash value of bank owned life insurance		49,738			49,432			45,832
Other assets		56,377			51,663			26,843

Total assets	$	3,487,984		$	3,667,649		$	2,861,651

Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing	$	698,866		$	668,531		$	490,961
Interest-bearing		2,311,781			2,330,700			1,999,012

Total deposits		3,010,647			2,999,231			2,489,973
Securities sold under agreements to repurchase		49,974			83,516			22,919
Other borrowings		59,677			194,572			—
Other liabilities		12,028			18,165			22,768
Subordinated deferrable interest debentures		55,628			55,466			42,269

Total liabilities		3,187,954			3,350,950			2,577,929

Commitments and contingencies
Stockholders’ Equity
Preferred stock, stated value $1,000; 5,000,000 shares authorized; 0, 28,000 and 28,000 shares issued and outstanding		—			28,000			27,753
Common stock, par value $1; 100,000,000 shares authorized; 26,535,571, 26,461,769 and 25,238,635 shares issued		26,536			26,462			25,239
Capital surplus		190,513			189,722			165,078
Retained earnings		92,055			83,991			70,554
Accumulated other comprehensive income (loss)		2,374			(294	)		6,274
Treasury stock, at cost, 1,376,498, 1,363,342 and 1,362,955 shares		(11,448	)		(11,182	)		(11,176	)

Total stockholders’ equity		300,030			316,699			283,722

Total liabilities and stockholders’ equity	$	3,487,984		$	3,667,649		$	2,861,651

See notes to unaudited consolidated financial statements

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(dollars in thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
	2014			2013
Interest income
Interest and fees on loans	$	34,469		$	28,716
Interest on taxable securities		2,985			1,697
Interest on nontaxable securities		335			375
Interest on deposits in other banks		79			85
Interest on federal funds sold		5			—

Total interest income		37,873			30,873

Interest expense
Interest on deposits		2,183			2,226
Interest on other borrowings		1,206			309

Total interest expense		3,389			2,535

Net interest income		34,484			28,338
Provision for loan losses		1,726			2,923

Net interest income after provision for loan losses		32,758			25,415

Noninterest income
Service charges on deposit accounts		5,586			4,837
Mortgage origination fees		5,068			4,464
Other service charges, commissions and fees		652			329
Gain on sale of securities		6			172
Other		1,442			1,558

Total noninterest income		12,754			11,360

Noninterest expense
Salaries and employee benefits		17,394			13,806
Occupancy and equipment expense		4,064			2,931
Advertising and marketing expense		710			255
Amortization of intangible assets		533			364
Data processing and communications costs		3,454			2,570
Other operating expenses		7,084			8,958

Total noninterest expense		33,239			28,884

Income before income tax expense		12,273			7,891
Applicable income tax expense		3,923			2,606

Net income		8,350			5,285

Preferred stock dividends		286			441

Net income available to common stockholders		8,064			4,844

Other comprehensive income (loss)
Unrealized holding gains (losses) arising during period on investment securities available for sale, net of tax		2,938			(429	)
Reclassification adjustment for gains included in net income, net of tax		(4	)		(112	)
Unrealized gain (loss) on cash flow hedges arising during period , net of tax		(266	)		209

Other comprehensive income (loss)		2,668			(332	)

Comprehensive income	$	11,018		$	4,953

Basic and diluted earnings per share	$	0.32		$	0.20

Weighted average common shares outstanding
Basic		25,144			23,868
Diluted		25,573			24,246

See notes to unaudited consolidated financial statements

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(dollars in thousands, except per share data)

(Unaudited)


	Three Months Ended						Three Months Ended
	March 31, 2014						March 31, 2013
	Shares			Amount			Shares			Amount
PREFERRED STOCK
Balance at beginning of period		28,000		$	28,000			28,000		$	27,662
Repurchase of preferred stock		(28,000	)		(28,000	)		—			—
Accretion of fair value of warrant		—			—			—			91

*Balance at end of period*		—		$	—			28,000		$	27,753
COMMON STOCK
Balance at beginning of period		26,461,769		$	26,462			25,154,818		$	25,155
Issuance of restricted shares		68,047			68			81,400			81
Proceeds from exercise of stock options		5,755			6			2,417			3

*Balance at end of period*		26,535,571		$	26,536			25,238,635		$	25,239
CAPITAL SURPLUS
Balance at beginning of period				$	189,722					$	164,949
Stock-based compensation					795						197
Issuance of restricted shares					(68	)					(81	)
Proceeds from exercise of stock options					64						13

*Balance at end of period*				$	190,513					$	165,078
RETAINED EARNINGS
Balance at beginning of period				$	83,991					$	65,710
Net income					8,350						5,284
Dividends on preferred shares					(286	)					(349	)
Accretion of fair value warrant					—						(91	)

*Balance at end of period*				$	92,055					$	70,554
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains on securities and derivatives:
Balance at beginning of period				$	(294	)				$	6,607
Other comprehensive income (loss) during the period					2,668						(333	)

*Balance at end of period*				$	2,374					$	6,274
TREASURY STOCK
Balance at beginning of period		(1,363,342	)	$	(11,182	)		(1,355,050	)	$	(11,066	)
Purchase of treasury shares		(13,156	)		(266	)		(7,905	)		(110	)

*Balance at end of period*		(1,376,498	)	$	(11,448	)		(1,362,955	)	$	(11,176	)

*TOTAL STOCKHOLDERS’ EQUITY*				$	300,030					$	283,722

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)


	Three Months Ended March 31,
	2014			2013
Cash flows from operating activities:
Net income	$	8,350		$	5,285
Adjustments reconciling net income to net cash provided by operating activities:
Depreciation		1,871			1,246
Stock based compensation expense		795			197
Net (gains) losses on sale or disposal of premises and equipment		(18	)		6
Net gains on securities available for sale		(6	)		(172	)
Net losses or write-downs on sale of other real estate owned		921			3,047
Provision for loan losses		1,726			2,923
Amortization of intangible assets		532			364
Net change in mortgage loans held for sale		15,585			6,454
Other prepaids, deferrals and accruals, net		2,489			11,570

Net cash provided by operating activities		32,245			30,920

Cash flows from investing activities, net of effects of business combinations:
Net decrease (increase) in federal funds sold and interest-bearing deposits		156,307			112,472
Proceeds from maturities of securities available for sale		11,834			20,746
Purchase of securities available for sale		(46,690	)		(25,328	)
Purchase of bank owned life insurance		—			(28,674	)
Decrease in restricted equity securities, net		7,506			1,304
Proceeds from sales of securities available for sale		68,899			26,802
Net change in loans		(56,807	)		(13,805	)
Proceeds from sales of other real estate owned		8,932			10,140
Proceeds from sales of premises and equipment		55			713
(Increase) decrease in FDIC indemnification asset		12,260			(1,255	)
Purchases of premises and equipment		(464	)		(1,470	)

Net cash provided by investing activities		161,832			101,645

Cash flows from financing activities, net of effects of business combinations:
Net (decrease) increase in deposits		11,416			(134,690	)
Net decrease in securities sold under agreements to repurchase		(33,542	)		(27,201	)
Proceeds from other borrowings		29,963			—
Repayment of other borrowings		(165,000	)		—
Redemption of preferred stock		(28,000	)		—
Dividends paid—preferred stock		(286	)		(349	)
Purchase of treasury shares		(266	)		(110	)
Proceeds from exercise of stock options		70			16

Net cash used in financing activities		(185,645	)		(162,334	)

Net decrease in cash and due from banks		8,432			(29,769	)
Cash and due from banks at beginning of period		62,955			80,256

Cash and due from banks at end of period	$	71,387		$	50,487

SUPPLEMNTAL DISCLOSURES OF NON-CASH INFORMATION
Cash paid during the period for:
Interest	$	3,463		$	2,805
Income taxes	$	—		$	780
Loans transferred to other real estate owned	$	7,547		$	15,541

See notes to unaudited consolidated financial statements

AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2014

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Ameris Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered in Moultrie, Georgia. Ameris conducts substantially all of its operations through its wholly owned banking subsidiary, Ameris Bank (the “Bank”). At March 31, 2014 the Bank operated 68 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 our established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of his or her unique market.

The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended March 31, 2014 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto and the report of our registered independent public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Newly Adopted Accounting Pronouncements

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

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

Fair Value of Financial Instruments

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself or the counterparties. However, as of March 31, 2014 and 2013, 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 adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.

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


			Fair Value Measurements at March 31, 2014 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Loans, net	$	2,482,601	$	—	$	1,651,409	$	851,216	$	2,502,625
Financial liabilities:
Deposits		3,010,647		—		3,011,383		—		3,011,383
Other borrowings		59,677		—		59,677		—		59,677

			Fair Value Measurements at December 31, 2013 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Loans, net	$	2,435,067	$	—	$	1,565,919	$	881,536	$	2,447,455
Financial liabilities:
Deposits		2,999,231		—		3,000,061		—		3,000,061
Other borrowings		194,572		—		194,572		—		194,572

			Fair Value Measurements at March 31, 2013 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Loans, net	$	1,930,095	$	—	$	1,458,604	$	501,874	$	1,960,478
Financial liabilities:
Deposits		2,489,973		—		2,491,282		—		2,491,282

The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of March 31, 2014, December 31, 2013 and March 31, 2013 (dollars in thousands):


	Fair Value Measurements on a Recurring Basis As of March 31, 2014
	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	$	14,145	$	—	$	14,145	$	—
State, county and municipal securities		111,574		—		111,574		—
Corporate debt securities		10,383		—		8,383		2,000
Mortgage-backed securities		320,611		—		320,611		—
Mortgage loans held for sale		51,693		—		51,693		—

Total recurring assets at fair value	$	508,406	$	—	$	506,406	$	2,000

Derivative financial instruments	$	675	$	—	$	675	$	—

Total recurring liabilities at fair value	$	675	$	—	$	675	$	—


	Fair Value Measurements on a Recurring Basis As of December 31, 2013
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. government agencies	$	13,926	$	—	$	13,926	$	—
State, county and municipal securities		112,754		—		112,754		—
Collateralized debt obligations		1,480		1,480		—		—
Corporate debt securities		10,325		—		8,325		2,000
Mortgage-backed securities		347,750		182,461		165,289		—
Mortgage loans held for sale		67,278		—		67,278		—

Total recurring assets at fair value	$	553,513	$	183,941	$	367,572	$	2,000

Derivative financial instruments	$	370	$	—	$	370	$	—

Total recurring liabilities at fair value	$	370	$	—	$	370	$	—


	Fair Value Measurements on a Recurring Basis As of March 31, 2013
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. government agencies	$	5,015	$	—	$	5,015	$	—
State, county and municipal securities		115,532		—		115,532		—
Corporate debt securities		10,297		—		8,297		2,000
Mortgage-backed securities		193,185		4,054		189,131		—
Mortgage loans held for sale		42,332		—		42,332		—

Total recurring assets at fair value	$	366,361	$	4,054	$	360,307	$	2,000

Derivative financial instruments	$	2,553	$	—	$	2,553	$	—

Total recurring liabilities at fair value	$	2,553	$	—	$	2,553	$	—

The following table is a presentation of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy as of March 31, 2014, December 31, 2013 and March 31, 2013 (dollars in thousands):


	Fair Value Measurements on a Nonrecurring Basis As of March 31, 2014
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans carried at fair value	$	41,253	$	—	$	—	$	41,253
Other real estate owned		33,839		—		—		33,839
Purchased, non-covered loans		437,269		—		—		437,269
Purchased, non-covered other real estate owned		3,864		—		—		3,864
Covered loans		372,694		—		—		372,694
Covered other real estate owned		42,636		—		—		42,636

Total nonrecurring assets at fair value	$	931,555	$	—	$	—	$	931,555


	Fair Value Measurements on a Nonrecurring Basis As of December 31, 2013
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans carried at fair value	$	42,546	$	—	$	—	$	42,546
Other real estate owned		33,351		—		—		33,351
Purchased, non-covered loans		448,753		—		—		448,753
Purchased, non-covered other real estate owned		4,276		—		—		4,276
Covered loans		390,237		—		—		390,237
Covered other real estate owned		45,893		—		—		45,893

Total nonrecurring assets at fair value	$	965,056	$	—	$	—	$	965,056


	Fair Value Measurements on a Nonrecurring Basis As of March 31, 2013
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans carried at fair value	$	51,150	$	—	$	—	$	51,150
Other real estate owned		40,434		—		—		40,434
Covered loans		460,724		—		—		460,724
Covered other real estate owned		77,915		—		—		77,915

Total nonrecurring assets at fair value	$	630,223	$	—	$	—	$	630,223

The inputs used to determine estimated fair value of impaired loans and covered loans include market conditions, loan terms, 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 three months ended March 31, 2014 and 2013, 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 March 31, 2014		Valuation Technique	Unobservable Inputs	Range
	(Dollars in Thousands)
Nonrecurring:
Impaired loans	$	41,253	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	4.00% - 60.00%
Other real estate owned	$	33,839	Third party appraisals	Collateral discounts and estimated costs to sell	10.00% - 74.00%
Purchased, non-covered loans	$	437,269	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	1.00% - 40.00%
Purchased non-covered other real estate owned	$	3,864	Third party appraisals	Collateral discounts and estimated costs to sell	15.00% - 57.00%
Covered loans	$	372,694	Third party appraisals and discounted cash flows	Collateral discounts and discount rate	1.75% - 75.00%
Covered real estate owned	$	42,636	Third party appraisals	Collateral discounts and estimated costs to sell	10.00% - 87.00%
Recurring:
Investment securities available for sale	$	2,000	Discounted par values	Credit quality of underlying issuer	0.00%

The transfers between the fair value hierarchy levels during the three months ended March 31, 2014 and 2013 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 the Company’s reconciliation of Level 3 assets below.


	Investment securities available for sale		Impaired loans carried at fair value			Other real estate owned			Purchased, non-covered loans			Purchased, non-covered other real estate owned			Covered loans			Covered other real estate owned
									(Dollars in Thousands)
Beginning balance, January 1, 2014	$	2,000	$	42,546		$	33,351		$	448,753		$	4,276		$	390,237		$	45,893
Total gains (losses) included in net income		—		—			(750	)		—			(46	)		—			(219	)
Purchases, sales, issuances, and settlements, net		—		—			(1,316	)		(11,416	)		(529	)		(12,617	)		(7,964	)
Transfers in or out of Level 3		—		—			1,261			—			95			—			—
Asset reclassification, within Level 3		—		(1,293	)		1,293			(68	)		68			(4,926	)		4,926

Ending balance, March 31, 2014	$	2,000	$	41,253		$	33,839		$	437,269		$	3,864		$	372,694		$	42,636


	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		—		—			(15	)		—			(3,032	)
Purchases, sales, issuances, and settlements, net		—		—			(2,027	)		(31,449	)		(22,865	)
Transfers in to Level 3		—		1,262			—			—			—
Asset reclassification, within Level 3		—		(2,626	)		2,626			(15,539	)		15,539

Ending balance March 31, 2013	$	2,000	$	51,150		$	40,434		$	460,724		$	77,915

NOTE 2 – PENDING MERGER AND ACQUISITION

On March 10, 2014, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Coastal Bankshares, Inc. (“Coastal”), a bank holding company headquartered in Savannah, Georgia. The Coastal Bank is a wholly owned banking subsidiary of Coastal that has a total of six banking locations in Chatham, Liberty and Effingham Counties, Georgia. As of December 31, 2013, Coastal reported assets of $433 million, loans of $295 million and deposits of $364 million. Under the terms of the Merger Agreement, Coastal will merge with and into Ameris, with Ameris as the surviving entity in the merger. In addition, The Coastal Bank will be merged with and into the Bank, with the Bank as the surviving entity.

Pursuant to the terms of the Merger Agreement, Coastal shareholders will receive 0.4671 shares of the Company’s common stock in exchange for each share of Coastal common stock they hold. Based on the closing price of the Company’s common stock on February 28, 2014, the transaction would be valued at approximately $37.3 million, which represents 169% of Coastal’s tangible book value as of December 31, 2013. The purchase price will be allocated among the assets of Coastal acquired as appropriate, with the remaining balance being reported as goodwill.

Consummation of the merger is subject to customary conditions, including, among others, approval of the Merger Agreement by Coastal’s shareholders and the receipt of required regulatory approvals. The transaction is expected to close during the third quarter of 2014.

NOTE 3 – BUSINESS COMBINATIONS

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

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

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


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

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

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

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

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

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

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

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

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

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

Fair value of total consideration transferred	$	24,791

Explanation of fair value adjustments

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

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

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

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

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

(f)

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

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

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

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

NOTE 4 – 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 March 31, 2014, December 31, 2013 and March 31, 2013 are presented below:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in Thousands)
March 31, 2014:
U. S. government agencies	$	14,948	$	—	$	(803	)	$	14,145
State, county and municipal securities		110,331		2,724		(1,481	)		111,574
Corporate debt securities		10,307		285		(209	)		10,383
Mortgage-backed securities		319,216		4,244		(2,849	)		320,611

Total debt securities	$	454,802	$	7,253	$	(5,342	)	$	456,713

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

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

March 31, 2013:
U. S. government agencies	$	5,000	$	15	$	—		$	5,015
State, county and municipal securities		110,628		5,051		(147	)		115,532
Corporate debt securities		10,542		355		(600	)		10,297
Mortgage-backed securities		188,492		5,342		(649	)		193,185

Total debt securities	$	314,662	$	10,763	$	(1,396	)	$	324,029

The amortized cost and fair value of available-for-sale securities at March 31, 2014 by contractual maturity are summarized in the table below. Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers can prepay obligations without prepayment penalties. Therefore, these securities are not included in the following maturity summary.


	Amortized Cost		Fair Value
	(Dollars in Thousands)
Due in one year or less	$	3,088	$	3,110
Due from one year to five years		41,430		43,038
Due from five to ten years		65,798		65,210
Due after ten years		25,270		24,744
Mortgage-backed securities		319,216		320,611

	$	454,802	$	456,713

Securities with a carrying value of approximately $295.7 million serve as collateral to secure public deposits and for other purposes required or permitted by law at March 31, 2014.

The following table details the gross unrealized losses and fair value of securities aggregated by category and duration of the continuous unrealized loss position at March 31, 2014, December 31, 2013 and March 31, 2013.


	Less Than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
March 31, 2014:
U. S. government agencies	$	9,353	$	(595	)	$	4,792	$	(208	)	$	14,145	$	(803	)
State, county and municipal securities		38,937		(1,238	)		3,612		(243	)		42,549		(1,481	)
Corporate debt securities		—		—			4,871		(209	)		4,871		(209	)
Mortgage-backed securities		55,103		(1,219	)		31,184		(1,630	)		86,287		(2,849	)

Total debt securities	$	103,393	$	(3,052	)	$	44,459	$	(2,290	)	$	147,852	$	(5,342	)

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

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

March 31, 2013:
U. S. government agencies	$	—	$	—		$	—	$	—		$	—	$	—
State, county and municipal securities		19,159		(138	)		505		(9	)		19,664		(147	)
Corporate debt securities		244		(6	)		4,506		(594	)		4,750		(600	)
Mortgage-backed securities		55,189		(648	)		1,120		(1	)		56,309		(649	)

Total debt securities	$	74,592	$	(792	)	$	6,131	$	(604	)	$	80,723	$	(1,396	)

NOTE 5 – 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 the 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, 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 loan categories are presented in the following table:


(Dollars in Thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Commercial, financial and agricultural	$	270,571	$	244,373	$	180,888
Real estate – construction and development		149,543		146,371		130,161
Real estate – commercial and farmland		836,230		808,323		766,227
Real estate – residential		393,001		366,882		367,056
Consumer installment		32,345		34,249		37,335
Other		13,692		18,256		11,086

	$	1,695,382	$	1,618,454	$	1,492,753

Purchased non-covered loans are defined as loans that were acquired in bank acquisitions that are not covered by a loss-sharing agreement with the FDIC. Purchased non-covered loans totaling $437.3 million and $448.8 million at March 31, 2014 and December 31, 2013, respectively, are not included in the above schedule.

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


(Dollars in Thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Commercial, financial and agricultural	$	30,810	$	32,141	$	—
Real estate – construction and development		31,820		31,176		—
Real estate – commercial and farmland		174,281		179,898		—
Real estate – residential		196,078		200,851		—
Consumer installment		4,280		4,687		—

	$	437,269	$	448,753	$	—

Covered loans are defined as loans that were acquired in FDIC-assisted transactions that are covered by a loss-sharing agreement with the FDIC. Covered loans totaling $372.7 million, $390.2 million and $460.7 million at March 31, 2014, December 31, 2013 and March 31, 2013, respectively, are not included in the above schedules.

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


(Dollars in Thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Commercial, financial and agricultural	$	24,813	$	26,550	$	28,568
Real estate – construction and development		41,434		43,179		57,114
Real estate – commercial and farmland		214,649		224,451		260,159
Real estate – residential		91,372		95,173		113,668
Consumer installment		426		884		1,215

	$	372,694	$	390,237	$	460,724

Nonaccrual and Past Due Loans

A loan is placed on nonaccrual status when, in management’s judgment, the collection of the interest income appears doubtful. Interest receivable that has been accrued and is subsequently determined to have doubtful collectability is charged against interest income. Interest payments on nonaccrual loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. 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 loans accounted for on a nonaccrual basis, excluding purchased non-covered and covered loans:


(Dollars in Thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Commercial, financial and agricultural	$	3,008	$	4,103	$	3,756
Real estate – construction and development		4,080		3,971		9,390
Real estate – commercial and farmland		8,550		8,566		9,798
Real estate – residential		10,631		12,152		13,840
Consumer installment		460		411		692

	$	26,729	$	29,203	$	37,476

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


(Dollars in Thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Commercial, financial and agricultural	$	117	$	11	$	—
Real estate – construction and development		1,131		325		—
Real estate – commercial and farmland		6,829		1,653		—
Real estate – residential		7,208		4,658		—
Consumer installment		33		12		—

	$	15,318	$	6,659	$	—

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


(Dollars in Thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Commercial, financial and agricultural	$	10,025	$	7,257	$	8,718
Real estate – construction and development		14,780		14,781		18,956
Real estate – commercial and farmland		24,285		33,495		47,580
Real estate – residential		10,558		13,278		23,018
Consumer installment		133		341		243

	$	59,781	$	69,152	$	98,515

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


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of March 31, 2014:
Commercial, financial & agricultural	$	1,083	$	386	$	2,956	$	4,425	$	266,146	$	270,571	$	—
Real estate – construction & development		1,304		249		3,919		5,472		144,071		149,543		—
Real estate – commercial & farmland		2,255		1,650		7,622		11,527		824,703		836,230		—
Real estate – residential		3,657		1,541		10,298		15,496		377,505		393,001		—
Consumer installment loans		474		68		345		887		31,458		32,345		—
Other		—		—		—		—		13,692		13,692		—

Total	$	8,773	$	3,894	$	25,140	$	37,807	$	1,657,575	$	1,695,382	$	—


	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, 2013:
Commercial, financial & agricultural	$	10,893	$	272	$	4,081	$	15,246	$	229,127	$	244,373	$	—
Real estate – construction & development		1,026		69		3,935		5,030		141,341		146,371		—
Real estate – commercial & farmland		3,981		1,388		7,751		13,120		795,203		808,323		—
Real estate – residential		5,422		1,735		11,587		18,744		348,138		366,882		—
Consumer installment loans		568		197		305		1,070		33,179		34,249		—
Other		—		—		—		—		18,256		18,256		—

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


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of March 31, 2013:
Commercial, financial & agricultural	$	1,797	$	149	$	3,729	$	5,675	$	175,213	$	180,888	$	—
Real estate – construction & development		1,538		1,538		8,312		11,388		118,773		130,161		—
Real estate – commercial & farmland		11,115		3,220		9,352		23,687		742,540		766,227		—
Real estate – residential		7,686		1,719		11,699		21,104		345,952		367,056		—
Consumer installment loans		745		169		563		1,477		35,858		37,335		—
Other		—		—		—		—		11,086		11,086		—

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

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


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of March 31, 2014:
Commercial, financial & agricultural	$	291	$	—	$	117	$	408	$	30,402	$	30,810	$	—
Real estate – construction & development		680		661		867		2,208		29,612		31,820		—
Real estate – commercial & farmland		3,956		5,126		2,550		11,632		162,649		174,281		—
Real estate – residential		5,187		1,816		6,503		13,506		182,572		196,078		—
Consumer installment loans		12		11		30		53		4,227		4,280		—

Total	$	10,126	$	7,614	$	10,067	$	27,807	$	409,462	$	437,269	$	—


	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, 2013:
Commercial, financial & agricultural	$	370	$	70	$	11	$	451	$	31,690	$	32,141	$	—
Real estate – construction & development		1,008		89		325		1,422		29,754		31,176		—
Real estate – commercial & farmland		6,851		2,064		1,516		10,431		169,467		179,898		—
Real estate – residential		4,667		1,074		3,428		9,169		191,682		200,851		—
Consumer installment loans		7		17		9		33		4,654		4,687		—

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

The following table presents an analysis of covered past due loans as of March 31, 2014, December 31, 2013 and March 31, 2013:


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of March 31, 2014:
Commercial, financial & agricultural	$	688	$	55	$	8,976	$	9,719	$	15,094	$	24,813	$	—
Real estate – construction & development		4,248		302		14,472		19,022		22,412		41,434		—
Real estate – commercial & farmland		15,732		3,722		17,680		37,134		177,515		214,649		—
Real estate – residential		3,579		1,585		9,752		14,916		76,456		91,372		1,396
Consumer installment loans		2		50		103		155		271		426		—

Total	$	24,249	$	5,714	$	50,983	$	80,946	$	291,748	$	372,694	$	1,396


	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, 2013:
Commercial, financial & agricultural	$	3,966	$	12	$	6,165	$	10,143	$	16,407	$	26,550	$	—
Real estate – construction & development		843		144		14,055		15,042		28,137		43,179		—
Real estate – commercial & farmland		8,482		4,350		26,428		39,260		185,191		224,451		346
Real estate – residential		7,648		1,914		10,244		19,806		75,367		95,173		—
Consumer installment loans		51		14		305		370		514		884		—

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


	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Loans Past Due		Current Loans		Total Loans		Loans 90 Days or More Past Due and Still Accruing
	(Dollars in Thousands)
As of March 31, 2013:
Commercial, financial & agricultural	$	756	$	314	$	7,270	$	8,340	$	20,228	$	28,568	$	98
Real estate – construction & development		3,971		876		17,415		22,262		34,852		57,114		—
Real estate – commercial & farmland		10,227		2,837		42,464		55,528		204,631		260,159		—
Real estate – residential		5,608		345		18,895		24,848		88,820		113,668		48
Consumer installment loans		41		11		205		257		958		1,215		—

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

Impaired Loans

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

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


	As of and For the Period Ended
	March 31, 2014		December 31, 2013		March 31, 2013
	(Dollars in Thousands)
Nonaccrual loans	$	26,729	$	29,203	$	37,476
Troubled debt restructurings not included above		18,848		17,214		18,513

Total impaired loans	$	45,577	$	46,417	$	55,989

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

Impaired loans requiring a related allowance	$	45,577	$	46,417	$	55,989

Allowance related to impaired loans	$	4,324	$	3,871	$	4,839

Average investment in impaired loans	$	45,997	$	51,721	$	56,808

Interest income recognized on impaired loans	$	20	$	522	$	78

Foregone interest income on impaired loans	$	246	$	418	$	54

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


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(Dollars in Thousands)
As of March 31, 2014:
Commercial, financial & agricultural	$	5,421	$	—	$	3,719	$	3,719	$	394	$	4,169
Real estate – construction & development		10,636		—		6,033		6,033		736		5,950
Real estate – commercial & farmland		19,983		—		17,282		17,282		1,972		16,380
Real estate – residential		21,307		—		17,996		17,996		1,211		18,983
Consumer installment loans		688		—		547		547		11		515

Total	$	58,035	$	—	$	45,577	$	45,577	$	4,324	$	45,997


	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, 2013:
Commercial, financial & agricultural	$	6,240	$	—	$	4,618	$	4,618	$	435	$	4,844
Real estate – construction & development		11,363		—		5,867		5,867		512		8,341
Real estate – commercial & farmland		18,456		—		15,479		15,479		1,443		17,559
Real estate – residential		24,342		—		19,970		19,970		1,472		20,335
Consumer installment loans		623		—		483		483		9		642

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


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(Dollars in Thousands)
As of March 31, 2013:
Commercial, financial & agricultural	$	7,818	$	—	$	4,555	$	4,555	$	740	$	4,747
Real estate – construction & development		20,633		—		11,273		11,273		922		11,144
Real estate – commercial & farmland		22,996		—		18,676		18,676		1,816		19,793
Real estate – residential		24,777		—		20,792		20,792		1,344		20,320
Consumer installment loans		920		—		693		693		17		804

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

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


	As of and For the Period Ended
	March 31, 2014		December 31, 2013		March 31, 2013
	(Dollars in Thousands)
Nonaccrual loans	$	15,318	$	6,659	$	—
Troubled debt restructurings not included above		5,191		5,938		—

Total impaired loans	$	20,509	$	12,597	$	—

Impaired loans not requiring a related allowance	$	20,509	$	12,597	$	—

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

Allowance related to impaired loans	$	—	$	—	$	—

Average investment in impaired loans	$	16,553	$	242	$	—

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

Foregone interest income on impaired loans	$	563	$	—	$	—

The following table presents an analysis of information pertaining to impaired purchased non-covered loans as of March 31, 2014 and December 31, 2013:


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(Dollars in Thousands)
As of March 31, 2014:
Commercial, financial & agricultural	$	233	$	117	$	—	$	117	$	—	$	64
Real estate – construction & development		6,173		3,574		—		3,574		—		3,631
Real estate – commercial & farmland		12,966		7,790		—		7,790		—		5,336
Real estate – residential		15,524		8,987		—		8,987		—		7,483
Consumer installment loans		240		41		—		41		—		39

Total	$	35,136	$	20,509	$	—	$	20,509	$	—	$	16,553


	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, 2013:
Commercial, financial & agricultural	$	19	$	11	$	—	$	11	$	—	$	—
Real estate – construction & development		5,719		3,690		—		3,690		—		71
Real estate – commercial & farmland		4,563		2,881		—		2,881		—		55
Real estate – residential		9,612		5,978		—		5,978		—		115
Consumer installment loans		57		37		—		37		—		1

Total	$	19,970	$	12,597	$	—	$	12,597	$	—	$	242

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


	As of and For the Period Ended
	March 31, 2014		December 31, 2013		March 31, 2013
	(Dollars in Thousands)
Nonaccrual loans	$	59,781	$	69,152	$	98,515
Troubled debt restructurings not included above		22,775		22,243		21,592

Total impaired loans	$	82,556	$	91,395	$	120,107

Impaired loans not requiring a related allowance	$	82,556	$	91,395	$	120,107

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

Allowance related to impaired loans	$	—	$	—	$	—

Average investment in impaired loans	$	86,976	$	110,830	$	127,507

Interest income recognized on impaired loans	$	155	$	968	$	169

Foregone interest income on impaired loans	$	10	$	330	$	147

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


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(Dollars in Thousands)
As of March 31, 2014:
Commercial, financial & agricultural	$	12,143	$	10,039	$	—	$	10,039	$	—	$	8,655
Real estate – construction & development		20,704		18,034		—		18,034		—		18,036
Real estate – commercial & farmland		36,664		31,746		—		31,746		—		36,247
Real estate – residential		25,230		22,604		—		22,604		—		23,801
Consumer installment loans		167		133		—		133		—		237

Total	$	94,908	$	82,556	$	—	$	82,556	$	—	$	86,976


	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, 2013:
Commercial, financial & agricultural	$	9,680	$	7,270	$	—	$	7,270	$	—	$	8,696
Real estate – construction & development		20,915		18,037		—		18,037		—		21,794
Real estate – commercial & farmland		46,612		40,749		—		40,749		—		51,584
Real estate – residential		29,089		24,998		—		24,998		—		28,452
Consumer installment loans		394		341		—		341		—		304

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


	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
	(Dollars in Thousands)
As of March 31, 2013:
Commercial, financial & agricultural	$	24,301	$	8,754	$	—	$	8,754	$	—	$	9,778
Real estate – construction & development		78,421		23,978		—		23,978		—		23,607
Real estate – commercial & farmland		139,197		55,822		—		55,822		—		60,026
Real estate – residential		54,422		31,310		—		31,310		—		33,823
Consumer installment loans		324		243		—		243		—		273

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

Credit Quality Indicators

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

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

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

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

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

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

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

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

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

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

The following table presents the loan portfolio, excluding purchased non-covered and covered loans, by risk grade as of March 31, 2014:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	86,688	$	—	$	259	$	478	$	6,380	$	—	$	93,805
15		26,730		5,483		153,285		57,119		1,346		—		243,963
20		90,692		48,872		454,292		192,492		17,678		13,692		817,718
23		120		9,111		9,784		11,765		276		—		31,056
25		55,827		76,962		178,174		100,634		5,580		—		417,177
30		5,386		2,889		15,324		14,440		201		—		38,240
40		5,001		6,226		25,112		16,063		884		—		53,286
50		127		—		—		10		—		—		137
60		—		—		—		—		—		—		—

Total	$	270,571	$	149,543	$	836,230	$	393,001	$	32,345	$	13,692	$	1,695,382

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


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

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

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


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	32,223	$	—	$	304	$	500	$	7,241	$	—	$	40,268
15		11,569		4,794		146,563		68,212		1,635		—		232,773
20		75,503		34,947		385,984		138,634		19,623		11,086		665,777
23		45		6,606		8,970		13,662		120		—		29,403
25		52,631		66,012		187,567		112,096		7,340		—		425,646
30		3,324		6,004		12,334		10,573		250		—		32,485
40		5,494		11,643		24,505		23,379		1,126		—		66,147
50		99		155		—		—		—		—		254
60		—		—		—		—		—		—		—

Total	$	180,888	$	130,161	$	766,227	$	367,056	$	37,335	$	11,086	$	1,492,753

The following table presents the purchased non-covered loan portfolio by risk grade as of March 31, 2014:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	1,932	$	—	$	—	$	287	$	328	$	—	$	2,547
15		4,408		52		12,422		14,231		679		—		31,792
20		4,596		3,907		43,132		33,553		1,218		—		86,406
23		—		—		—		—		—		—		—
25		19,213		22,780		102,918		134,653		1,965		—		281,529
30		235		697		3,387		2,660		20		—		6,999
40		426		4,384		12,422		10,694		70		—		27,996
50		—		—		—		—		—		—		—
60		—		—		—		—		—		—		—

Total	$	30,810	$	31,820	$	174,281	$	196,078	$	4,280	$	—	$	437,269

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


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

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

The following table presents the covered loan portfolio by risk grade as of March 31, 2014:


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	—	$	—	$	—	$	—	$	—	$	—	$	—
15		—		10		1,024		650		—		—		1,684
20		1,769		7,760		35,625		19,613		151		—		64,918
23		139		978		17,416		4,870		51		—		23,454
25		6,921		9,182		101,948		38,140		42		—		156,233
30		5,106		1,185		17,625		7,025		3		—		30,944
40		10,878		22,319		41,011		21,074		179		—		95,461
50		—		—		—		—		—		—		—
60		—		—		—		—		—		—		—

Total	$	24,813	$	41,434	$	214,649	$	91,372	$	426	$	—	$	372,694

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


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

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

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


Risk Grade	Commercial, financial & agricultural		Real estate - construction & development		Real estate - commercial & farmland		Real estate - residential		Consumer installment loans		Other		Total
	(Dollars in Thousands)
10	$	—	$	—	$	—	$	—	$	—	$	—	$	—
15		—		34		1,598		638		—		—		2,270
20		3,117		11,106		36,020		27,547		266		—		78,056
23		75		1,248		9,153		1,946		—		—		12,422
25		8,135		10,184		110,985		40,863		508		—		170,675
30		2,979		4,457		35,601		8,784		50		—		51,871
40		14,262		30,085		66,802		33,890		391		—		145,430
50		—		—		—		—		—		—		—
60		—		—		—		—		—		—		—

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

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 the 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 that 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 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 three months of 2014 and 2013 totaling $6.3 million and $27.4 million, respectively, under such parameters. In addition, the Company offers consumer loan customers an annual skip-a-pay program that is based on certain qualifying parameters and not based on financial difficulties. The Company does not treat these as troubled debt restructurings.

As of March 31, 2014, December 31, 2013 and March 31, 2013, the Company had a balance of $21.2 million, $20.9 million and $23.3 million, respectively, in troubled debt restructurings, excluding purchased non-covered and covered loans. The Company has recorded $2.3 million, $2.1 million and $2.6 million in previous charge-offs on such loans at March 31, 2014, December 31, 2013 and March 31, 2013, respectively. The Company’s balance in the allowance for loan losses allocated to such troubled debt restructurings was $422,000, $432,000 and $591,000 at March 31, 2014, December 31, 2013 and March 31, 2013, respectively. At March 31, 2014, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings

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


As of March 31, 2014	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Commercial, financial & agricultural		4	$	711		2	$	40
Real estate – construction & development		11		1,953		1		29
Real estate – commercial & farmland		19		8,733		5		1,316
Real estate – residential		35		7,364		8		961
Consumer installment		11		87		2		19

Total		80	$	18,848		18	$	2,365


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

Total		72	$	17,214		20	$	3,683


As of March 31, 2013	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Commercial, financial & agricultural		5	$	799		—	$	—
Real estate – construction & development		5		1,883		1		43
Real estate – commercial & farmland		16		8,878		3		3,595
Real estate – residential		26		6,953		3		1,111
Consumer installment		—		—		1		6

Total		52	$	18,513		8	$	4,755

The following table presents the amount of troubled debt restructurings by loan class, excluding purchased non-covered and covered loans, classified separately as those currently paying under restructured terms and those that have defaulted under restructured terms at March 31, 2014, December 31, 2013 and March 31, 2013:


As of March 31, 2014	Loans Currently Paying Under Restructured Terms				Loans that have Defaulted Under Restructured Terms
Loan class:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Commercial, financial & agricultural		4	$	268		2	$	482
Real estate – construction & development		10		1,916		2		66
Real estate – commercial & farmland		19		8,733		5		1,316
Real estate – residential		30		6,365		13		1,961
Consumer installment		11		80		2		26

Total		74	$	17,362		24	$	3,851


As of December 31, 2013	Loans Currently Paying Under Restructured Terms				Loans that have Defaulted Under Restructured Terms
Loan class:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Commercial, financial & agricultural		4	$	515		3	$	525
Real estate – construction & development		8		1,896		2		32
Real estate – commercial & farmland		16		6,396		5		2,789
Real estate – residential		32		6,699		13		1,953
Consumer installment		7		90		2		2

Total		67	$	15,596		25	$	5,301


As of March 31, 2013	Loans Currently Paying Under Restructured Terms				Loans that have Defaulted Under Restructured Terms
Loan class:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Commercial, financial & agricultural		5	$	799		—	$	—
Real estate – construction & development		5		1,883		1		43
Real estate – commercial & farmland		16		8,878		3		3,595
Real estate – residential		26		6,953		3		1,111
Consumer installment		—		—		1		6

Total		52	$	18,513		8	$	4,755

The following table presents the amount of troubled debt restructurings, excluding purchased non-covered and covered loans, by types of concessions made, classified separately as accrual and non-accrual at March 31, 2014, December 31, 2013 and March 31, 2013:


As of March 31, 2014	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Forbearance of Interest		8	$	1,933		4	$	300
Forgiveness of Principal		4		1,957		1		516
Payment Modification Only		—		—		1		149
Rate Reduction Only		13		6,782		4		1,134
Rate Reduction, Forbearance of Interest		38		5,489		6		230
Rate Reduction, Forbearance of Principal		17		2,687		1		7
Rate Reduction, Payment Modification		—		—		1		29

Total		80	$	18,848		18	$	2,365


As of December 31, 2013	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Forbearance of Interest		10	$	2,170		2	$	97
Forgiveness of Principal		3		1,467		1		145
Payment Modification Only		1		280		1		88
Rate Reduction Only		14		7,069		3		913
Rate Reduction, Forbearance of Interest		26		3,252		12		2,411
Rate Reduction, Forbearance of Principal		18		2,976		—		—
Rate Reduction, Payment Modification		—		—		1		29

Total		72	$	17,214		20	$	3,683


As of March 31, 2013	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Forbearance of Interest		2	$	1,843		—	$	—
Forgiveness of Principal		3		1,504		1		207
Payment Modification Only		2		376		—		—
Rate Reduction Only		10		7,033		2		182
Rate Reduction, Forbearance of Interest		17		4,046		2		3,100
Rate Reduction, Forbearance of Principal		18		3,711		1		255
Rate Reduction, Payment Modification		—		—		2		1,011

Total		52	$	18,513		8	$	4,755

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


As of March 31, 2014	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Warehouse		4	$	1,345		2	$	586
Raw Land		5		1,298		1		29
Agriculture		1		311		1		66
Hotel & Motel		3		2,154		—		—
Office		4		1,652		1		149
Retail, including Strip Centers		6		2,905		1		516
1-4 Family Residential		42		8,027		9		978
Church		1		365		—		—
Automobile/Equipment/Inventory		13		548		3		41
Unsecured		1		243		—		—

Total		80	$	18,848		18	$	2,365


As of December 31, 2013	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Warehouse		4	$	1,346		2	$	592
Raw Land		11		2,345		2		32
Hotel & Motel		3		2,185		—		—
Office		4		1,909		—		—
Retail, including Strip Centers		4		1,095		2		1,680
1-4 Family Residential		36		7,747		9		852
Life Insurance Policy		1		250		—		—
Automobile/Equipment/Inventory		8		92		4		479
Unsecured		1		245		1		48

Total		72	$	17,214		20	$	3,683


As of March 31, 2013	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Warehouse		3	$	1,689		1	$	176
Raw Land		1		1,285		1		43
Hotel & Motel		3		2,273		—		—
Office		4		2,095		1		2,450
Retail, including Strip Centers		6		2,821		1		969
1-4 Family Residential		30		7,550		3		1,111
Life Insurance Policy		1		250		—		—
Automobile/Equipment/Inventory		3		500		1		6
Unsecured		1		50		—		—

Total		52	$	18,513		8	$	4,755

As of March 31, 2014 and December 31, 2013, the Company had a balance of $6.5 million and $7.2 million, respectively, in troubled debt restructurings included in purchased non-covered loans. The Company has recorded $345,000 in previous charge-offs on such loans at March 31, 2014. The Company had not recorded any previous charge-offs on such loans at December 31, 2013. At March 31, 2014, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

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


As of March 31, 2014	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		—	$	—		1	$	6
Real estate – construction & development		7		2,443		2		264
Real estate – commercial & farmland		2		961		2		726
Real estate – residential		12		1,779		4		255
Consumer installment		1		8		2		17

Total		22	$	5,191		11	$	1,268


As of December 31, 2013	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		—	$	—		1	$	6
Real estate – construction & development		10		3,364		—		—
Real estate – commercial & farmland		3		1,228		1		468
Real estate – residential		8		1,321		8		738
Consumer installment		3		25		—		—

Total		24	$	5,938		10	$	1,212

The following table presents the amount of troubled debt restructurings by loan class of purchased non-covered loans, classified separately as those currently paying under restructured terms and those that have defaulted under restructured terms at March 31, 2014 and December 31, 2013.


As of March 31, 2014	Loans Currently Paying Under Restructured Terms				Loans that have Defaulted Under Restructured Terms
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		—	$	—		1	$	6
Real estate – construction & development		6		2,244		3		463
Real estate – commercial & farmland		—		—		4		1,687
Real estate – residential		8		1,187		8		847
Consumer installment		1		8		2		17

Total		15	$	3,439		18	$	3,020


As of December 31, 2013	Loans Currently Paying Under Restructured Terms				Loans that have Defaulted Under Restructured Terms
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		—	$	—		1	$	6
Real estate – construction & development		1		8		2		17
Real estate – commercial & farmland		8		3,068		2		296
Real estate – residential		—		—		4		1,696
Consumer installment		7		1,153		9		906

Total		16	$	4,229		18	$	2,921

The following table presents the amount of troubled debt restructurings included in purchased non-covered loans, by types of concessions made, classified separately as accrual and non-accrual at March 31, 2014 and December 31, 2013.


As of March 31, 2014	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance (in thousands)		#		Balance (in thousands)
Forbearance of Principal		1	$	299		—	$	—
Forgiveness of Principal		1		164		1		259
Payment Modification Only		1		61		1		13
Rate Reduction Only		12		2,354		7		491
Rate Reduction, Forbearance of Principal		7		2,313		2		505

Total		22	$	5,191		11	$	1,268


As of December 31, 2013	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance (in thousands)		#		Balance (in thousands)
Forbearance of Interest		1	$	300		—	$	—
Forgiveness of Principal		2		425		—		—
Payment Modification Only		2		75		—		—
Rate Reduction Only		11		2,170		8		707
Rate Reduction, Forbearance of Principal		8		2,968		2		505

Total		24	$	5,938		10	$	1,212

The following table presents the amount of troubled debt restructurings included in purchased non-covered loans, by collateral types, classified separately as accrual and non-accrual at March 31, 2014 and December 31, 2013.


As of March 31, 2014	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance (in thousands)		#		Balance (in thousands)
Warehouse		—	$	—		1	$	467
Raw Land		5		1,988		—		—
Office		1		798		—		—
Retail, including Strip Centers		1		164		1		259
1-4 Family Residential		15		2,241		6		519
Automobile/Equipment/Inventory		—		—		3		23

Total		22	$	5,191		11	$	1,268


As of December 31, 2013	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance (in thousands)		#		Balance (in thousands)
Warehouse		—	$	—		1	$	468
Raw Land		6		2,640		—		—
Office		1		803		—		—
Retail, including Strip Centers		2		425		—		—
1-4 Family Residential		13		2,053		8		738
Automobile/Equipment/Inventory		2		17		1		6

Total		24	$	5,938		10	$	1,212

As of March 31, 2014, December 31, 2013 and March 31, 2013, the Company had a balance of $22.8 million, $27.3 million and $27.6 million, respectively, in troubled debt restructurings included in covered loans. The Company has recorded $3.2 million, $1.6 million and $6.6 million in previous charge-offs on such loans at March 31, 2014, December 31, 2013 and March 31, 2013, respectively. At March 31, 2014, the Company did not have any commitments to lend additional funds to debtors whose terms have been modified in troubled restructurings.

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


As of March 31, 2014	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		1	$	14		5	$	68
Real estate – construction & development		3		3,254		5		49
Real estate – commercial & farmland		14		7,461		7		3,872
Real estate – residential		85		12,046		9		1,031
Consumer installment		—		—		1		5

Total		103	$	22,775		27	$	5,025


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

Total		100	$	22,243		24	$	5,021


As of March 31, 2013	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		1	$	36		1	$	—
Real estate – construction & development		8		5,022		3		788
Real estate – commercial & farmland		13		6,438		6		4,984
Real estate – residential		53		8,266		9		2,016
Consumer installment		—		—		1		6

Total		75	$	19,762		20	$	7,794

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


As of March 31, 2014	Loans Currently Paying Under Restructured Terms				Loans that have Defaulted Under Restructured Terms
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		5	$	43		1	$	40
Real estate – construction & development		2		374		6		2,928
Real estate – commercial & farmland		18		6,962		3		4,370
Real estate – residential		75		9,576		19		3,502
Consumer installment		1		5		—		—

Total		101	$	16,960		29	$	10,840


As of December 31, 2013	Loans Currently Paying Under Restructured Terms				Loans that have Defaulted Under Restructured Terms
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		5	$	45		1	$	40
Real estate – construction & development		5		3,273		2		34
Real estate – commercial & farmland		15		7,543		3		3,658
Real estate – residential		68		9,206		23		3,455
Consumer installment		2		10		—		—

Total		95	$	20,077		29	$	7,187


As of March 31, 2013	Loans Currently Paying Under Restructured Terms				Loans that have Defaulted Under Restructured Terms
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		1	$	36		1	$	—
Real estate – construction & development		8		5,022		3		788
Real estate – commercial & farmland		14		6,603		5		4,819
Real estate – residential		52		8,373		10		1,909
Consumer installment		1		6		—		—

Total		76	$	20,040		19	$	7,516

The following table presents the amount of troubled debt restructurings included in covered loans, by types of concessions made, classified separately as accrual and non-accrual at March 31, 2014, December 31, 2013 and March 31, 2013.


As of March 31, 2014	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance (in thousands)		#		Balance (in thousands)
Forbearance of Interest		—	$	—		4	$	127
Forgiveness of Principal		—		—		—		—
Payment Modification Only		—		—		—		—
Rate Reduction Only		90		18,578		10		1,043
Rate Reduction, Forbearance of Interest		3		88		8		471
Rate Reduction, Forbearance of Principal		9		3,259		5		3,384
Rate Reduction, Payment Modification		1		850		—		—

Total		103	$	22,775		27	$	5,025


As of December 31, 2013	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance (in thousands)		#		Balance (in thousands)
Forbearance of Interest		—	$	—		3	$	98
Forgiveness of Principal		—		—		—		—
Payment Modification Only		—		—		—		—
Rate Reduction Only		89		18,687		9		953
Rate Reduction, Forbearance of Interest		3		88		8		478
Rate Reduction, Forbearance of Principal		7		2,613		4		3,492
Rate Reduction, Payment Modification		1		855		—		—

Total		100	$	22,243		24	$	5,021


As of March 31, 2013	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance (in thousands)		#		Balance (in thousands)
Forbearance of Interest		3	$	232		6	$	1,077
Forgiveness of Principal		—		—		1		—
Payment Modification Only		—		—		—		—
Rate Reduction Only		61		15,897		8		1,820
Rate Reduction, Forbearance of Interest		4		456		2		1,362
Rate Reduction, Forbearance of Principal		6		2,322		3		3,535
Rate Reduction, Payment Modification		1		855		—		—

Total		75	$	19,762		20	$	7,794

The following table presents the amount of troubled debt restructurings included in covered loans, by collateral types, classified separately as accrual and non-accrual at March 31, 2014, December 31, 2013 and March 31, 2013.


As of March 31, 2014	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance (in thousands)		#		Balance (in thousands)
Warehouse		—	$	—		2	$	486
Raw Land		1		374		5		59
Hotel & Motel		7		4,867		—		—
Office		2		1,342		1		73
Retail, including Strip Centers		5		3,819		3		3,287
1-4 Family Residential		87		12,359		11		1,052
Automobile/Equipment/Inventory		—		—		5		68
Unsecured		1		14		—		—

Total		103	$	22,775		27	$	5,025


As of December 31, 2013	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance (in thousands)		#		Balance (in thousands)
Warehouse		—	$	—		1	$	377
Raw Land		1		375		3		37
Hotel & Motel		6		5,118		1		155
Office		1		855		1		78
Retail, including Strip Centers		6		3,853		2		3,337
1-4 Family Residential		85		12,029		11		966
Automobile/Equipment/Inventory		—		—		5		71
Unsecured		1		13		—		—

Total		100	$	22,243		24	$	5,021


As of March 31, 2013	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance (in thousands)		#		Balance (in thousands)
Warehouse		1	$	379		—	$	—
Raw Land		4		2,496		2		772
Hotel & Motel		6		3,650		1		166
Office		1		855		1		87
Retail, including Strip Centers		7		3,769		4		4,732
1-4 Family Residential		54		8,563		11		2,037
Automobile/Equipment/Inventory		1		36		1		—
Unsecured		1		14		—		—

Total		75	$	19,762		20	$	7,794

Allowance for Loan Losses

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

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

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

During the three months ended March 31, 2014, the year ended December 31, 2013 and the three months ended March 31, 2013, the Company recorded provision for loan loss expense of $225,000, $1.5 million and $320,000, respectively, to account for losses where the initial estimate of cash flows was found to be excessive on loans acquired in FDIC-assisted transactions. These amounts are excluded from the rollforwards above and below but are reflected in the Company’s Consolidated Statements of Earnings.

The following table details activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2014, the year ended December 31, 2013 and the three months ended March 31, 2013. 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, 2014	$	1,823		$	5,538		$	8,393		$	6,034		$	589		$	22,377
Provision for loan losses		1,090			337			622			(656	)		108			1,501
Loans charged off		(743	)		(65	)		(533	)		(181	)		(84	)		(1,606	)
Recoveries of loans previously charged off		49			108			143			83			89			472

Balance, March 31, 2014	$	2,219		$	5,918		$	8,625		$	5,280		$	702		$	22,744

Period-end amount allocated to:
Loans individually evaluated for impairment	$	318		$	631		$	1,994		$	1,133		$	—		$	4,076
Loans collectively evaluated for impairment		1,901			5,287			6,631			4,147			702			18,668

Ending balance	$	2,219		$	5,918		$	8,625		$	5,280		$	702		$	22,744

Loans:
Individually evaluated for impairment	$	2,837		$	3,817		$	16,832		$	14,602		$	—		$	38,088
Collectively evaluated for impairment		267,734			145,726			819,398			378,399			46,037			1,657,294

Ending balance	$	270,571		$	149,543		$	836,230		$	393,001		$	46,037		$	1,695,382


	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		711			1,742			2,777			4,463			254			9,947
Loans charged off		(1,759	)		(2,020	)		(3,571	)		(5,215	)		(719	)		(13,284	)
Recoveries of loans previously charged off		432			473			30			888			298			2,121

Balance, December 31, 2013	$	1,823		$	5,538		$	8,393		$	6,034		$	589		$	22,377

Period-end amount allocated to:
Loans individually evaluated for impairment	$	356		$	407		$	1,427		$	1,395		$	—		$	3,585
Loans collectively evaluated for impairment		1,467			5,131			6,966			4,639			589			18,792

Ending balance	$	1,823		$	5,538		$	8,393		$	6,034		$	589		$	22,377

Loans:
Individually evaluated for impairment	$	3,457		$	3,581		$	15,240		$	16,925		$	—		$	39,203
Collectively evaluated for impairment		240,916			142,790			793,083			349,957			52,505			1,579,251

Ending balance	$	244,373		$	146,371		$	808,323		$	366,882		$	52,505		$	1,618,454


	Commercial, financial & agricultural			Real estate - construction & development			Real estate - commercial & farmland			Real estate - residential			Consumer installment loans and Other			Total
	(Dollars in thousands)
Balance, January 1, 2013	$	2,439		$	5,343		$	9,157		$	5,898		$	756		$	23,593
Provision for loan losses		254			1,467			696			339			(153	)		2,603
Loans charged off		(410	)		(655	)		(1,025	)		(779	)		(167	)		(3,036	)
Recoveries of loans previously charged off		84			2			3			85			48			222

Balance, March 31, 2013	$	2,367		$	6,157		$	8,831		$	5,543		$	484		$	23,382

Period-end amount allocated to:
Loans individually evaluated for impairment	$	675		$	641		$	1,890		$	1,203		$	—		$	4,409
Loans collectively evaluated for impairment		1,692			5,516			6,941			4,340			484			18,973

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

Loans:
Individually evaluated for impairment	$	3,334		$	8,281		$	19,545		$	14,069		$	—		$	45,229
Collectively evaluated for impairment		177,554			121,880			746,682			352,987			48,421			1,447,524

Ending balance	$	180,888		$	130,161		$	766,227		$	367,056		$	48,421		$	1,492,753

NOTE 6 – 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.

The following table summarizes components of all covered assets at March 31, 2014, December 31, 2013 and March 31, 2013 and their origin:


	Covered loans		Less: Credit risk adjustments		Less: Liquidity and rate adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC indemnification asset
As of March 31, 2014:	(Dollars in thousands)
AUB	$	13,629	$	220	$	—	$	13,409	$	4,264	$	—	$	4,264	$	17,673	$	1,190
USB		15,668		935		—		14,733		3,366		135		3,231		17,964		535
SCB		33,896		1,274		—		32,622		3,122		303		2,819		35,441		2,781
FBJ		24,281		2,768		—		21,513		1,850		253		1,597		23,110		3,034
DBT		100,909		13,138		—		87,771		12,250		1,092		11,158		98,929		14,947
TBC		31,576		2,119		—		29,457		4,681		761		3,920		33,377		3,425
HTB		61,560		6,596		34		54,930		7,263		2,349		4,914		59,844		8,540
OGB		55,569		4,564		89		50,916		8,169		2,984		5,185		56,101		6,815
CBG		77,767		10,364		60		67,343		7,127		1,579		5,548		72,891		11,914

Total	$	414,855	$	41,978	$	183	$	372,694	$	52,092	$	9,456	$	42,636	$	415,330	$	53,181

	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, 2013:	(Dollars in thousands)
AUB	$	15,787	$	231	$	—	$	15,556	$	4,264	$	—	$	4,264	$	19,820	$	1,452
USB		18,504		1,427		—		17,077		2,865		141		2,724		19,801		889
SCB		34,637		1,483		—		33,154		3,461		303		3,158		36,312		3,175
FBJ		25,891		3,730		—		22,161		1,880		242		1,638		23,799		3,689
DBT		105,157		17,819		—		87,338		17,023		1,282		15,741		103,079		18,724
TBC		32,590		2,340		14		30,236		4,844		745		4,099		34,335		3,721
HTB		67,126		7,321		38		59,767		6,374		2,304		4,070		63,837		9,325
OGB		58,512		4,969		98		53,445		7,506		2,984		4,522		57,967		9,645
CBG		85,118		13,535		80		71,503		7,610		1,933		5,677		77,180		14,821

Total	$	443,322	$	52,855	$	230	$	390,237	$	55,827	$	9,934	$	45,893	$	436,130	$	65,441


	Covered loans		Less: Credit risk adjustments		Less: Liquidity and rate adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC indemnification asset
As of March 31, 2013:	(Dollars in thousands)
AUB	$	25,001	$	2,508	$	—	$	22,493	$	8,079	$	100	$	7,979	$	30,472	$	4,176
USB		25,921		3,879		—		22,042		5,379		139		5,240		27,282		9,932
SCB		40,008		3,189		—		36,819		6,670		299		6,371		43,190		8,189
FBJ		31,479		5,662		11		25,806		1,450		93		1,357		27,163		6,840
DBT		146,178		35,461		83		110,634		25,990		1,895		24,095		134,729		37,333
TBC		42,302		4,450		133		37,719		10,478		1,814		8,664		46,383		8,050
HTB		82,202		14,068		49		68,085		14,823		3,445		11,378		79,463		21,423
OGB		73,279		14,877		127		58,275		10,384		4,144		6,240		64,515		18,687
CBG		109,596		30,605		140		78,851		8,424		1,833		6,591		85,442		46,349

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

On the dates of acquisition, the Company estimated the future cash flows on each individual loan and made the necessary adjustments to reflect the asset at fair value. At each quarter end subsequent to the acquisition dates, the Company revises the estimates of future cash flows based on current information and makes the necessary adjustments to continue reflecting the assets at fair value. The adjustments to fair value are performed on a loan-by-loan basis and have resulted in the following:


Total Amounts	March 31, 2014		December 31, 2013		March 31, 2013
	(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)	$	5,622	$	51,003	$	4,052
Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		1,125		7,695		1,600


Amounts reflected in the Company’s Statement of Earnings	March 31, 2014		December 31, 2013		March 31, 2013
	(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)	$	1,124	$	10,201	$	810
Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		225		1,539		320

A rollforward of acquired loans with deterioration of credit quality for the three months ended March 31, 2014, the year ended December 31, 2013 and the three months ended March 31, 2013 is shown below:


(Dollars in Thousands)	March 31, 2014			December 31, 2013			March 31, 2013
Balance, January 1	$	217,047		$	282,737		$	282,737
Change in estimate of cash flows, net of charge-offs or recoveries		4,659			35,306			(5,391	)
Additions due to acquisitions		—			—			—
Other (loan payments, transfers, etc.)		(16,505	)		(100,996	)		(22,279	)

Ending balance	$	205,201		$	217,047		$	255,067

A rollforward of acquired loans without deterioration of credit quality for the three months ended March 31, 2014, the year ended December 31, 2013 and the three months ended March 31, 2013 is shown below:


(Dollars in Thousands)	March 31, 2014			December 31, 2013			March 31, 2013
Balance, January 1	$	173,190		$	228,602		$	228,602
Change in estimate of cash flows, net of charge-offs or recoveries		2,571			13,471			(2,625	)
Additions due to acquisitions		—			—			—
Other (loan payments, transfers, etc.)		(8,268	)		(68,883	)		(20,229	)

Ending balance	$	167,493		$	173,190		$	205,748

The following is a summary of changes in the accretable discounts of acquired loans during the three months ended March 31, 2014, the year ended December 31, 2013 and the three months ended March 31, 2013:


(Dollars in Thousands)	March 31, 2014			December 31, 2013			March 31, 2013
Balance, January 1	$	25,493		$	16,698		$	16,698
Additions due to acquisitions		—			—			—
Accretion		(15,024	)		(42,208	)		(7,218	)
Other activity, net		5,622			51,003			4,052

Ending balance	$	16,091		$	25,493		$	13,532

The shared-loss agreements are subject to the servicing procedures as specified in the agreement with the FDIC. The expected reimbursements under the shared-loss agreements were recorded as an indemnification asset at their estimated fair values on the acquisition dates. Changes in the FDIC shared-loss receivable for the three months ended March 31, 2014, for the year ended December 31, 2013 and for the three months ended March 31, 2013 are as follows:


(Dollars in Thousands)	March 31, 2014			December 31, 2013			March 31, 2013
Balance, January 1	$	65,441		$	159,724		$	159,724
Indemnification asset recorded in acquisitions		—			—			—
Payments received from FDIC		(6,773	)		(68,822	)		(6,324	)
Effect of change in expected cash flows on covered assets		(5,487	)		(25,461	)		7,579

Ending balance	$	53,181		$	65,441		$	160,979

NOTE 7 – WEIGHTED AVERAGE SHARES OUTSTANDING

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


	For the Three Months Ended March 31,
	2014		2013
	(share data in thousands)
Basic shares outstanding		25,144		23,868
Plus: Dilutive effect of ISOs		95		63
Plus: Dilutive effect of Restricted Grants		334		315

Diluted shares outstanding		25,573		24,246

For the quarters ended March 31, 2014 and 2013, the Company has excluded 268,000 and 408,000, respectively, potential common shares with strike prices that would cause them to be anti-dilutive.

NOTE 8 – OTHER BORROWINGS

The Company has, from time to time, utilized certain borrowing arrangements with various financial institutions to fund growth in earning assets or provide additional liquidity when appropriate spreads can be realized. At March 31, 2014 and December 31, 2013, there were $59.7 million and $194.6 million, respectively, outstanding borrowings with the Company’s correspondent banks. At March 31, 2013, there were no outstanding borrowings with the Company’s correspondent banks.

Other borrowings consist of the following:


(Dollars in Thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Daily Rate Credit from Federal Home Loan Bank with a fixed interest rate of 0.36%	$	25,000	$	—	$	—
Advance from Federal Home Loan Bank with a fixed interest rate of 0.17%, due January 24, 2014		—		165,000		—
Advances under revolving credit agreement with a regional bank with interest at 90-day LIBOR plus 4.00% (4.24% at March 31, 2014) due in August 2016, secured by subsidiary bank stock		10,000		10,000		—
Advance from correspondent bank with a fixed interest rate of 4.50%, due November 27, 2017, secured by subsidiary bank loan receivable				—		—
Subordinated debt issued by Prosperity Bank due June 2016 with an interest rate of 90-day LIBOR plus 1.60% (1.84% at March 31, 2014)		5,000		5,000		—
Subordinated debt issued by The Prosperity Banking Company due September 2016 with an interest rate of 90-day LIBOR plus 1.75% (1.98% at March 31, 2014)		14,714		14,572		—

Total	$	59,677	$	194,572	$	—

NOTE 9 – COMMITMENTS AND CONTINGENCIES

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

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

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

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

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

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


(Dollars in Thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Commitments to extend credit	$	271,072	$	257,195	$	190,813
Standby letters of credit	$	7,961	$	7,665	$	6,747

NOTE 10 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income for the Company consists of changes in net unrealized gains and losses on investment securities available for sale and interest rate swap derivatives. The following tables present a summary of the accumulated other comprehensive income balances, net of tax, as of March 31, 2014 and 2013.


(Dollars in Thousands)	Unrealized Gain (Loss) on Derivatives			Unrealized Gain (Loss) on Securities			Accumulated Other Comprehensive Income (Loss)
Balance, January 1, 2014	$	1,397		$	(1,691	)	$	(294	)
Reclassification for gains included in net income		—			(4	)		(4	)
Current year changes		(266	)		2,938			2,672

Balance, March 31, 2014	$	1,131		$	1,243		$	2,374


(Dollars in Thousands)	Unrealized Gain (Loss) on Derivatives			Unrealized Gain (Loss) on Securities			Accumulated Other Comprehensive Income (Loss)
Balance, January 1, 2013	$	(23	)	$	6,630		$	6,607
Reclassification for gains included in net income		—			(112	)		(112	)
Current year changes		208			(429	)		(221	)

Balance, March 31, 2013	$	185		$	6,089		$	6,274

NOTE 11 – SEGMENT REPORTING

The following tables present selected financial information with respect to the Company’s reportable business segments for the three- month periods ended March 31, 2014 and 2013.


	Three Months Ended March 31, 2014						Three Months Ended March 31, 2013
	Retail Banking		Mortgage Banking		Total		Retail Banking		Mortgage Banking		Total
	(Dollars in Thousands)
Net interest income	$	33,384	$	1,100	$	34,484	$	27,766	$	572	$	28,338
Provision for loan losses		1,726		—		1,726		2,923		—		2,923
Noninterest income		7,590		5,164		12,754		6,896		4,464		11,360
Noninterest expense:
Salaries and employee benefits		13,826		3,568		17,394		11,037		2,769		13,806
Equipment and occupancy expenses		3,762		302		4,064		2,765		166		2,931
Data processing and telecommunications expenses		3,332		122		3,454		2,471		99		2,570
Other expenses		7,512		815		8,327		8,890		687		9,577

Total noninterest expense		28,432		4,807		33,239		25,163		3,721		28,884

Income before income tax expense		10,816		1,457		12,273		6,576		1,315		7,891
Income tax expense		3,413		510		3,923		2,146		460		2,606

Net income		7,403		947		8,350		4,430		855		5,285
Less preferred stock dividends		286		—		286		441		—		441

Net income available to common shareholders	$	7,117	$	947	$	8,064	$	3,989	$	855	$	4,844

Total assets	$	3,359,912	$	128,072	$	3,487,984	$	2,784,883	$	76,768	$	2,861,651
Stockholders’ equity		296,978		3,052		300,030		282,851		871		283,722

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 us; state and federal banking regulations; changes in or application of environmental and other laws and regulations to which we are 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 Securities and Exchange Commission under the Exchange Act.

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

Selected Financial Data

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


	2014			2013
(in thousands, except share data, taxable equivalent)	First Quarter			Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Results of Operations:
Net interest income	$	34,484		$	29,051		$	29,320		$	29,476		$	28,338
Net interest income (tax equivalent)		34,808			29,325			29,542			29,666			28,695
Provision for loan losses		1,726			1,478			2,920			4,165			2,923
Non-interest income		12,754			11,517			12,288			11,384			11,360
Non-interest expense		33,239			37,624			28,749			26,688			28,884
Income tax expense		3,923			88			3,262			3,329			2,606
Preferred stock dividends		286			412			443			442			441
Net income available to common shareholders		8,064			966			6,234			6,236			4,844
Selected Average Balances:
Mortgage loans held for sale	$	49,397		$	65,683		$	61,249		$	48,890		$	32,639
Loans, net of unearned income		1,639,672			1,602,942			1,564,311			1,523,654			1,455,687
Purchased non-covered loans		441,138			43,900			—			—			—
Covered loans		379,460			401,045			427,482			444,616			491,691
Investment securities		462,343			327,993			312,541			321,582			340,564
Earning assets		3,091,546			2,625,178			2,439,771			2,397,834			2,428,720
Assets		3,521,588			2,937,434			2,806,799			2,820,863			2,875,274
Deposits		2,975,305			2,552,819			2,439,150			2,448,171			2,511,511
Common shareholders’ equity		290,462			248,429			246,489			251,240			251,214
Period-End Balances:
Mortgage loans held for sale	$	51,693		$	67,278		$	69,634		$	62,580		$	42,332
Loans, net of unearned income		1,695,382			1,618,454			1,589,267			1,555,827			1,492,753
Purchased non-covered loans		437,269			448,753			—			—			—
Covered loans		372,694			390,237			417,649			443,517			460,724
Earning assets		3,062,428			3,215,941			2,462,697			2,421,996			2,401,043
Total assets		3,487,984			3,667,649			2,818,502			2,808,675			2,861,651
Deposits		3,010,647			2,999,231			2,443,421			2,443,103			2,489,973
Common shareholders’ equity		300,030			288,699			262,418			259,932			255,969
Per Common Share Data:
Earnings per share – Basic	$	0.32		$	0.04		$	0.26		$	0.26		$	0.20
Earnings per share – Diluted		0.32			0.04			0.26			0.26			0.20
Common book value per share		11.93			11.50			10.98			10.88			10.72
End of period shares outstanding		25,159,073			25,098,427			23,907,509			23,894,327			23,875,680
Weighted average shares outstanding
Basic		25,144,342			24,021,447			23,900,665			23,878,898			23,867,691
Diluted		25,573,320			24,450,619			24,315,821			24,287,628			24,246,346
Market Data:
High closing price	$	24.00		$	21.42		$	19.79		$	16.94		$	14.51
Low closing price		19.86			17.69			17.35			13.16			12.79
Closing price for quarter		23.30			21.11			18.38			16.85			14.35
Average daily trading volume		103,279			94,636			75,545			53,403			51,887
Cash dividends per share		—			—			—			—			—
Stock dividend		—			—			—			—			—
Closing price to book value		1.95			1.84			1.67			1.55			1.34
Performance Ratios:
Return on average assets		0.96	%		0.19	%		0.94	%		0.95	%		0.75	%
Return on average common equity		11.66	%		2.20	%		10.75	%		10.66	%		8.53	%
Average loan to average deposits		84.35	%		82.79	%		84.17	%		82.39	%		78.84	%
Average equity to average assets		9.04	%		9.41	%		9.78	%		9.93	%		9.70	%
Net interest margin (tax equivalent)		4.57	%		4.43	%		4.80	%		4.96	%		4.79	%
Efficiency ratio (tax equivalent)		70.36	%		92.74	%		69.09	%		65.32	%		72.76	%

Overview

The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of March 31, 2014, as compared to December 31, 2013, and operating results for the three month periods ended March 31, 2014 and 2013. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

Results of Operations for the Three Months Ended March 31, 2014

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $8.1 million, or $0.32 per diluted share, for the quarter ended March 31, 2014, compared to $4.8 million, or $0.20 per diluted share, for the same quarter in 2013. The Company’s return on average assets and average stockholders’ equity in the first quarter of 2014 were 0.96% and 11.66%, respectively, compared to 0.75% and 8.53%, respectively, in the first quarter of 2013. The Company’s mortgage banking activities have had a significant impact on the overall financial results of the Company. Below is a more detailed analysis of the retail banking activities and mortgage banking activities of the Company.


	Retail Banking		Mortgage Banking		Total
	(in thousands)
As of March 31, 2014:
Net interest income	$	33,384	$	1,100	$	34,484
Provision for loan losses		1,726		—		1,726
Non-interest income		7,590		5,164		12,754
Non-interest expense
Salaries and employee benefits		13,826		3,568		17,394
Occupancy		3,762		302		4,064
Data Processing		3,332		122		3,454
Other expenses		7,512		815		8,327

Total non-interest expense		28,432		4,807		33,239

Income before income taxes		10,816		1,457		12,273
Income tax expense		3,413		510		3,923
Net income		7,403		947		8,350
Preferred stock dividends		286		—		286

Net income available to common Shareholders	$	7,117	$	947	$	8,064


	Retail Banking		Mortgage Banking		Total
	(in thousands)
As of March 31, 2013:
Net interest income	$	27,766	$	572	$	28,338
Provision for loan losses		2,923		—		2,923
Non-interest income		6,896		4,464		11,360
Non-interest expense
Salaries and employee benefits		11,037		2,769		13,806
Occupancy		2,765		166		2,931
Data Processing		2,471		99		2,570
Other expenses		8,890		687		9,577

Total non-interest expense		25,163		3,721		28,884

Income before income taxes		6,576		1,315		7,891
Income tax expense		2,146		460		2,606
Net income		4,430		855		5,285
Preferred stock dividends		441		—		441

Net income available to common Shareholders	$	3,989	$	855	$	4,844

Net Interest Income and Margins

On a tax equivalent basis, net interest income for the first quarter of 2014 was $34.8 million, an increase of $6.4 million compared to the same quarter in 2013. The higher net interest income is a result of the acquisition of The Prosperity Banking Company during the fourth quarter of 2013, along with steady yields on the loan portfolio, lower levels of excess liquidity than in previous quarters and steady decreases in the Company’s cost of funds. The Company’s net interest margin decreased during the first quarter of 2014 to 4.57%, compared to 4.74% during the first quarter of 2013, but increased compared to 4.43% reported in the fourth quarter of 2013.

Total interest income, on a tax equivalent basis, during the first quarter of 2014 was $38.2 million compared to $30.9 million in the same quarter of 2013. Yields on earning assets fell slightly to 5.01%, compared to 5.17% reported in the first quarter of 2013. During the first quarter of 2014, loans comprised 81.2% of earning assets, compared to 81.5% in the same quarter of 2013. Increased lending activities have provided opportunities to grow the legacy loan portfolio. Yields on legacy loans decreased to 5.11% in the first quarter of 2014, compared to 5.46% in the same period of 2013. Covered loan yields remained stable at 7.23% in the first quarter of 2014 and 2013. The yield on purchased non-covered loans was 6.31% for the first quarter of 2014. Management anticipates improving economic conditions and increased loan demand will provide consistent interest income.

Total funding costs increased slightly to 0.43% in the first quarter of 2014, compared to 0.40% during the first quarter of 2013. Deposit costs decreased from 0.36% in the first quarter of 2013 to 0.30% in the first quarter of 2014. Continued shifts in the funding mix toward noninterest-bearing demand and other lower cost deposit categories was the primary reason for the decline. Ongoing efforts to maintain the percentage of funding from transaction deposits have succeeded such that non-CD deposits averaged 75.1% of total deposits in the first quarter of 2014, compared to 72.1% during the first quarter of 2013. Lower costs on deposits were realized due mostly to the lower rate environment and the Company’s ability to be less competitive on higher priced CDs due to its larger than normal position in short-term assets. Further opportunity to realize savings on deposits exists but may be limited due to current costs. Average balances of interest-bearing deposits and their respective costs for the first quarter of 2014 and 2013 are shown below:


(Dollars in Thousands)	March 31, 2014					March 31, 2013
	Average Balance		Average Cost			Average Balance		Average Cost
NOW	$	675,199		0.17	%	$	633,313		0.19	%
MMDA		749,150		0.37	%		592,842		0.36	%
Savings		143,109		0.10	%		102,380		0.11	%
Retail CDs < $100,000		373,523		0.53	%		313,191		0.64	%
Retail CDs > $100,000		361,861		0.72	%		368,577		0.78	%
Brokered CDs		5,970		3.26	%		19,448		3.52	%

Interest-bearing deposits	$	2,308,812		0.38	%	$	2,029,751		0.44	%

Provision for Loan Losses and Credit Quality

The Company’s provision for loan losses during the first quarter of 2014 amounted to $1.7 million, compared to $1.5 million in the fourth quarter of 2013 and to $2.9 million in the first quarter of 2013. Although the Company has experienced improving trends in criticized and classified assets for several quarters, provision for loan losses has still been required to account for loan growth and slight devaluation of real estate collateral. At March 31, 2014, classified loans still accruing totaled $39.7 million, compared to $28.6 million at March 31, 2013. This increase is predominately due to the addition of classified loans in the Prosperity Bank acquisition. Nonaccrual loans, excluding purchased non-covered and covered loans, totaled $26.7 million at March 31, 2014, a 28.7% decrease from $37.5 million reported at the end of the first quarter of 2013. Nonaccrual purchased non-covered loans totaled $15.3 million at March 31, 2014.

At March 31, 2014, OREO (excluding purchased non-covered and covered OREO) totaled $33.8 million, compared to $40.4 million at March 31, 2013. Purchased non-covered OREO totaled $3.9 million at March 31, 2014. Management regularly assesses the valuation of OREO through periodic reappraisal and through inquiries received in the marketing process. The Company has found that with a marketing window of 3-6 months, the liquidation of properties varies from 85% to 100% of current book value. Certain properties, mostly raw land and subdivision lots, have extended marketing periods because of excessive inventory and record low home building activity. At the end of the first quarter of 2014, total non-covered non-performing assets decreased to 2.29% of total assets compared to 2.72% at March 31, 2013. Management continues to aggressively identify and resolve problem assets while seeking quality credits to grow the loan portfolio.

Net charge-offs on loans during the first quarter of 2014 decreased to $1.1 million, or 0.27% of loans on an annualized basis, compared to $2.8 million, or 0.76% of loans, in the first quarter of 2013. The Company’s allowance for loan losses at March 31, 2014 was $22.7 million, or 1.34% of total loans, compared to $23.4 million, or 1.57% of total loans, at March 31, 2013.

Noninterest Income

Total noninterest income for the first quarter of 2014 was $12.8 million, compared to $11.4 million in the first quarter of 2013. Income from mortgage related activities continued to increase as a result of the Company’s increased number of mortgage bankers and higher level of productions. Service charges on deposit accounts in the first quarter of 2014 increased to $5.6 million, compared to $4.8 million in the first quarter of 2013. This increase was driven by the growth of core accounts through the acquisition of Prosperity Bank during the fourth quarter of 2013, along with higher balances in accounts subject to service charges.

Noninterest Expense

Total noninterest expense for the first quarter of 2014 increased to $33.2 million, compared to $28.9 million at the same time in 2013. Increases in noninterest expenses were primarily the result of the acquisition of Prosperity Bank during the fourth quarter of 2013 and additional expenses related to increases in mortgage volume. Salaries and employee benefits increased from $13.8 million in the first quarter of 2013 to $17.4 million in the first quarter of 2014. Occupancy and equipment expense increased during the quarter from $2.9 million in the first quarter of 2013 to $4.1 million in the first quarter of 2014. Total data processing and telecommunications expense in the first quarter of 2014 was $3.5 million, compared to $2.6 million in the first quarter of 2013. Credit related expenses, including problem loan and OREO expense and OREO write-downs and losses, decreased to $2.2 million in the first quarter of 2014, compared to $4.8 million in the first quarter of 2013 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 first quarter of 2014, the Company reported income tax expense of $3.9 million, compared to $2.6 million in the same period of 2013. The Company’s effective tax rate for the three months ended March 31, 2014 and 2013 was 32.0% and 33.0%, respectively.

Balance Sheet Comparison

Securities

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

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

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

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Substantially all of the unrealized losses on debt securities are related to changes in interest rates and do not affect the expected cash flows of the issuer or underlying collateral. All unrealized losses are considered temporary because each security carries an acceptable investment grade and the Company does not intend to sell these investment securities at an unrealized loss position at March 31, 2014, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at March 31, 2014, 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
March 31, 2014:
U.S. government agencies	$	14,948	$	14,145		1.85	%		5.56	$	—
State, county and municipal securities	$	110,331	$	111,574		3.61	%		5.34	$	4,566
Corporate debt securities	$	10,307	$	10,383		6.52	%		7.23	$	—
Mortgage-backed securities	$	319,216	$	320,611		2.58	%		4.05	$	51,282

Total debt securities	$	454,802	$	456,713		3.53	%		4.48	$	55,848

March 31, 2013:
U.S. government agencies	$	5,000	$	5,015		1.50	%		0.82	$	5,000
State, county and municipal securities	$	110,628	$	115,532		3.77	%		5.75	$	8,698
Corporate debt securities	$	10,542	$	10,297		6.63	%		7.42	$	—
Mortgage-backed securities	$	188,492	$	193,185		2.44	%		3.41	$	42,921

Total debt securities	$	314,662	$	324,029		3.04	%		4.33	$	56,619

Loans and Allowance for Loan Losses

At March 31, 2014, gross loans outstanding (including purchased non-covered and covered loans and mortgage loans held for sale) were $2.56 billion, a slight increase compared to the $2.52 billion reported at December 31, 2013. Mortgage loans held for sale decreased from $67.3 million at December 31, 2013 to $51.7 million at March 31, 2014. Legacy loans (excluding purchased non-covered and covered loans) increased $76.9 million, from $1.62 billion at December 31, 2013 to $1.70 billion at March 31, 2014. Purchased non-covered loans decreased $11.5 million, from $448.8 million at December 31, 2013 to $437.3 million at March 31, 2014. Covered loans decreased $17.5 million, from $390.2 million at December 31, 2013 to $372.7 million at March 31, 2014.

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

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

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

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

For the three month period ended March 31, 2014, the Company recorded net charge-offs totaling $1.1 million, compared to $2.8 million for the period ended March 31, 2013. The provision for loan losses for the three months ended March 31, 2014 decreased to $1.5 million, compared to $2.6 million during the three month period ended March 31, 2013. At the end of the first quarter of 2014, the allowance for loan losses totaled $22.7 million, or 1.34% of total loans, compared to $22.4 million, or 1.38% of total loans, at December 31, 2013 and $23.4 million, or 1.57% of total loans, at March 31, 2013.

The following table presents an analysis of the allowance for loan losses for the three month periods ended March 31, 2014 and March 31, 2013:


(Dollars in Thousands)	March 31, 2014			March 31, 2013
Balance of allowance for loan losses at beginning of period	$	22,377		$	23,593
Provision charged to operating expense		1,501			2,603
Charge-offs:
Commercial, financial and agricultural		743			410
Real estate – residential		181			779
Real estate – commercial and farmland		533			1,025
Real estate – construction and development		65			655
Consumer installment		84			167
Other		—			—

Total charge-offs		1,606			3,036

Recoveries:
Commercial, financial and agricultural		49			84
Real estate – residential		83			85
Real estate – commercial and farmland		143			3
Real estate – construction and development		108			2
Consumer installment		89			48
Other		—			—

Total recoveries		472			222

Net charge-offs		1,134			2,814

Balance of allowance for loan losses at end of period	$	22,744		$	23,382

Net annualized charge-offs as a percentage of average loans		0.27	%		0.76	%
Allowance for loan losses as a percentage of loans at end of period		1.34	%		1.57	%

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 $372.7 million, $390.2 million and $460.7 million at March 31, 2014, December 31, 2013 and March 31, 2013, respectively. OREO that is covered by the loss- sharing agreements with the FDIC totaled $42.6 million, $45.9 million and $77.9 million at March 31, 2014, December 31, 2013 and March 31, 2013, respectively. The loss-sharing agreements are subject to the servicing procedures as specified in the agreements with the FDIC. The expected reimbursements under the loss-sharing agreements were recorded as an indemnification asset at their estimated fair value on the acquisition dates. The FDIC loss-share receivable reported at March 31, 2014, December 31, 2013 and March 31, 2013 was $53.2 million, $65.4 million and $161.0 million, respectively.

The Company recorded the loans at their fair values, taking into consideration certain credit quality, risk and liquidity marks. The Company is confident in its estimation of credit risk and its adjustments to the carrying balances of the acquired loans. If the Company determines that a loan or group of loans has deteriorated from its initial assessment of fair value, a reserve for loan losses will be established to account for that difference. During the three months ended March 31, 2014, the year ended December 31, 2013 and the three months ended March 31, 2013, the Company recorded provision for loan loss expense of $225,000, $1.5 million and $320,000, respectively, to account for losses where the initial estimate of cash flows was found to be excessive on loans acquired in FDIC-assisted transactions. If the Company determines that a loan or group of loans has improved from its initial assessment of fair value, the increase in cash flows over those expected at the acquisition date is recognized as interest income prospectively.

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


(Dollars in Thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Commercial, financial and agricultural	$	24,813	$	26,550	$	28,568
Real estate – construction and development		41,434		43,179		57,114
Real estate – commercial and farmland		214,649		224,451		260,159
Real estate – residential		91,372		95,173		113,668
Consumer installment		426		884		1,215

	$	372,694	$	390,237	$	460,724

Non-Performing Assets

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

At March 31, 2014, nonaccrual legacy loans (excluding purchased non-covered and covered loans) totaled $26.7 million, a decrease of approximately $2.5 million since December 31, 2013. This decrease in nonaccrual loans is due to the sale of problem assets during the first quarter of 2014 and a slowdown in the formation of new problem credits At March 31, 2014, nonaccrual purchased non-covered loans totaled $15.3 million, an increase of approximately $8.7 million since December 31, 2013. This increase in nonaccrual purchased non-covered loans is caused by the Company downgrading certain assets acquired with the acquisition of Prosperity Bank in an effort to force borrower actions on assets that were well collateralized. Non-performing assets as a percentage of total assets were 2.29%, 2.00% and 2.72% at March 31, 2014, December 31, 2013 and March 31, 2013, respectively.

Non-performing assets at March 31, 2014, December 31, 2013 and March 31, 2013 were as follows:


(Dollars in Thousands)	March 31, 2014		December 31, 2013		March 31, 2013
Total nonaccrual loans (excluding purchased non-covered and covered loans)	$	26,729	$	29,203	$	37,476
Nonaccrual purchased non-covered loans		15,318		6,659		—
Accruing loans delinquent 90 days or more		—		—		—
Foreclosed assets (excluding purchased assets)l		33,839		33,351		40,434
Purchased, non-covered other real estate owned		3,864		4,276		—

Total non-performing assets	$	79,750	$	73,489	$	77,910

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 (excluding purchased non-covered and covered loans) at March 31, 2014, December 31, 2013 and March 31, 2013:


	March 31,2014				December 31,2013				March 31, 2013
	*(in thousands)*
Loan class:	#		Balance		#		Balance		#		Balance
Commercial, financial & agricultural		4	$	711		4	$	515		5	$	799
Real estate – construction & development		11		1,953		8		1,896		5		1,883
Real estate – commercial & farmland		19		8,733		17		6,913		16		8,878
Real estate – residential		35		7,364		37		7,818		26		6,953
Consumer installment		11		87		6		72		—		—

Total		80	$	18,848		72	$	17,214		52	$	18,513

The following table presents the amount of accruing troubled debt restructurings by loan class of purchased non-covered loans at March 31, 2014, December 31, 2013 and March 31, 2013:


	March 31,2014				December 31,2013				March 31, 2013
	*(in thousands)*
Loan class:	#		Balance		#		Balance		#		Balance
Commercial, financial & agricultural		—	$	—		—	$	—		—	$	—
Real estate – construction & development		7		2,443		10		3,364		—		—
Real estate – commercial & farmland		2		961		3		1,228		—		—
Real estate – residential		12		1,779		8		1,321		—		—
Consumer installment		1		8		3		25		—		—

Total		22	$	5,191		24	$	5,938		—	$	—

The following table presents the amount of accruing troubled debt restructurings by loan class of covered loans at March 31, 2014, December 31, 2013 and March 31, 2013:


	March 31,2014				December 31,2013				March 31, 2013
	*(in thousands)*
Loan class:	#		Balance		#		Balance		#		Balance
Commercial, financial & agricultural		1	$	14		1	$	13		1	$	36
Real estate – construction & development		3		3,254		3		3,256		8		5,022
Real estate – commercial & farmland		14		7,461		13		7,255		13		6,438
Real estate – residential		85		12,046		83		11,719		53		8,266
Consumer installment		—		—		—		—		—		—

Total		103	$	22,775		100	$	22,243		75	$	19,762

Commercial Lending Practices

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

The CRE guidance is applicable when either:

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

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

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

As of March 31, 2014, the Company exhibited a concentration in CRE loans based on Federal Reserve Call codes. The primary risks of CRE lending are:

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

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

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

The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of March 31, 2014 and December 31, 2013. The loan categories and concentrations below are based on Federal Reserve Call codes and include purchased non-covered and covered loans.


(Dollars in Thousands)	March 31, 2014					December 31, 2013
	Balance		% of Total Loans			Balance		% of Total Loans
Construction and development loans	$	222,797		9	%	$	220,726		9	%
Multi-family loans		72,926		3	%		67,607		3	%
Nonfarm non-residential loans		1,152,234		46	%		1,145,065		46	%

Total CRE Loans	$	1,447,957		58	%	$	1,433,398		58	%
All other loan types		1,057,388		42	%		1,024,046		42	%

Total Loans	$	2,505,345		100	%	$	2,457,444		100	%

The following table outlines the percent of total CRE loans, net owner occupied loans to total risk-based capital, and the Company’s internal concentration limits as of March 31, 2014 and December 31, 2013.


	Internal Limit			March 31, 2014			December 31, 2013
	Internal Limit			Actual			Actual
Construction and development		100	%		74	%		70	%
Commercial real estate		300	%		251	%		232	%

Short-Term Investments

The Company’s short-term investments are comprised of federal funds sold and interest-bearing balances. At March 31, 2014, the Company’s short-term investments were $48.7 million, compared to $205.0 million and $81.2 million at December 31, 2013 and March 31, 2013, respectively. At March 31, 2014, all of the balance was comprised of interest-bearing balances, the majority of which were at the Federal Reserve Bank of Atlanta.

Derivative Instruments and Hedging Activities

The Company had a cash flow hedge with a notional amount of $37.1 million at March 31, 2014, December 31, 2013 and March 31, 2013 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 $675,000, $370,000 and $2.6 million at March 31, 2014, December 31, 2013 and March 31, 2013, respectively. The Company also had forward contracts with a fair value of approximately $1.7 million, $1.2 million and $1.6 million at March 31, 2014, December 31, 2013, and March 31, 2014 respectively, to hedge changes in the value of the mortgage inventory due to changes in market interest rates. No hedge ineffectiveness from cash flow hedges was recognized in the statement of operations. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

Capital

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

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

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

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

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

As of March 31, 2014, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. The following table sets forth the regulatory capital ratios of Ameris at March 31, 2014, December 31, 2013 and March 31, 2013.


	March 31, 2014			December 31, 2013			March 31, 2013
Leverage Ratio (tier 1 capital to average assets)
Consolidated		8.91	%		11.33	%		10.93	%
Ameris Bank		9.43			11.93			10.88
Core Capital Ratio (tier 1 capital to risk weighted assets)
Consolidated		13.30			14.35			17.49
Ameris Bank		14.09			15.06			17.43
Total Capital Ratio (total capital to risk weighted assets)
Consolidated		14.28			15.32			18.74
Ameris Bank		15.06			16.03			18.68

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. In December 2012, the Company repurchased 24,000 outstanding Preferred Shares, and in March 2014, the Company redeemed the remaining 28,000 outstanding Preferred Shares.

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 March 31, 2014 and December 31, 2013, there were $59.7 million and $194.6 million, respectively, outstanding borrowings with the Company’s correspondent banks. There were no outstanding borrowings with the Company’s correspondent banks at March 31, 2013.

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


	March 31, 2014			December 31, 2013			September 30, 2013			June 30, 2013			March 31, 2013
Investment securities available for sale to total deposits		15.17	%		16.21	%		12.78	%		12.94	%		13.01	%
Loans (net of unearned income) to total deposits		83.22	%		81.94	%		82.14	%		81.84	%		78.45	%
Interest-earning assets to total assets		87.80	%		87.68	%		87.38	%		86.23	%		83.90	%
Interest-bearing deposits to total deposits		76.79	%		77.71	%		80.54	%		80.54	%		80.28	%

The liquidity resources of the Company are monitored continuously by the ALCO Committee and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s and the Bank’s liquidity ratios at March 31, 2014 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed only to U.S. dollar interest rate changes, and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company’s hedging activities are limited to cash flow hedges and are part of the Company’s program to manage interest rate sensitivity. At March 31, 2014, the Company had one effective LIBOR rate swap with a notional amount of $37.1 million. The LIBOR rate swap exchanges fixed rate payments of 4.15% for floating rate payments based on the three month LIBOR and matures December 2018. The Company also had forward contracts with a fair value of approximately $1.7 million at March 31, 2014 to hedge changes in the value of the mortgage inventory due to changes in market interest rates. Finally, the Company has no exposure to foreign currency exchange rate risk, commodity price risk and other market risks.

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

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

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

Item 4.

Controls and Procedures

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

During the quarter ended March 31, 2014, there was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A. of Part 1 in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

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

SIGNATURE

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


				AMERIS BANCORP
Date: May 9, 2014
				/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)

EXHIBIT INDEX


Exhibit No.		Description

2.1		Agreement and Plan of Merger dated as of March 10, 2014 by and between Ameris Bancorp and Coastal Bankshares, Inc. (incorporated by reference to Exhibit 2.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on March 11, 2014).

3.1		Articles of Incorporation of Ameris Bancorp, as amended (incorporated by reference to Exhibit 2.1 to Ameris Bancorp’s Regulation A Offering Statement on Form 1-A filed with the Commission on August 14, 1987).

3.2		Amendment to Amended Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1.1 to Ameris Bancorp’s Form 10-K filed with the Commission on March 28, 1996).

3.3		Amendment to Amended Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 4.3 to Ameris Bancorp’s Registration Statement on Form S-4 filed with the Commission on July 17, 1996).

3.4		Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.5 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 25, 1998).

3.5		Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 26, 1999).

3.6		Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.9 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 31, 2003).

3.7		Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on December 1, 2005).

3.8		Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on November 21, 2008).

3.9		Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on June 1, 2011).

3.10		Amended and Restated Bylaws of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on March 14, 2005).

31.1		Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer

32.1		Section 1350 Certification by the Company’s Chief Executive Officer

32.2		Section 1350 Certification by the Company’s Chief Financial Officer

101		The following financial statements from Ameris Bancorp’s Form 10-Q for the quarter ended March 31, 2014, formatted as interactive data files in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Earnings and Comprehensive Income; (iii) Consolidated Statements of Changes in Stockholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.