Ameris Bancorp - Quarter Report: 2014 September (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a 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 September 30, 2014

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

Commission File Number: 001-13901

LOGO

AMERIS BANCORP

(Exact name of registrant as specified in its charter)


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

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

(Address of principal executive offices)

(229) 890-1111

(Registrant’s telephone number)

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

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

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

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

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

AMERIS BANCORP

TABLE OF CONTENTS


		Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements.

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

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

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

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

	Notes to Consolidated Financial Statements		5

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

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

Item 4.	Controls and Procedures.		70

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.		71

Item 1A.	Risk Factors.		71

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

Item 3.	Defaults Upon Senior Securities.		71

Item 4.	Mine Safety Disclosures.		71

Item 5.	Other Information.		71

Item 6.	Exhibits.		71

Signatures			72

Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share data)


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

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

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

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

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

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

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

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

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

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

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

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

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(amounts in thousands, except per share data)

(Unaudited)


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands, except per share data)

(Unaudited)


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

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

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

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

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

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

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

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

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2014			2013
Cash flows from operating activities:
Net income	$	28,143		$	18,640
Adjustments reconciling net income to net cash provided by operating activities:
Depreciation		5,850			3,683
Stock based compensation expense		1,230			592
Net gains on sale or disposal of premises and equipment		(615	)		(61	)
Net losses or write-downs on sale of other real estate owned		2,344			5,646
Provision for loan losses		4,760			10,008
Accretion of discount on covered loans		(20,822	)		(36,552	)
Accretion of discount on purchased non-covered loans		(5,840	)		—
Accretion of FDIC loss-share receivable, net of amortization of FDIC clawback payable		8,699			19,721
Increase in cash surrender value of BOLI		(973	)		(898	)
Amortization of intangible assets		1,668			1,068
Net amortization of investment securities available for sale		2,609			2,531
Originations of mortgage loans held for sale		(504,164	)		(399,606	)
Proceeds from sales of mortgage loans held for sale		468,671			378,758
Net gains on securities available for sale		(138	)		(171	)
Change attributable to other operating activities		3,685			15,843

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

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

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

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

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

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

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

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

See notes to unaudited consolidated financial statements.

AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Ameris Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered in Moultrie, Georgia. Ameris conducts substantially all of its operations through its wholly-owned banking subsidiary, Ameris Bank (the “Bank”). At September 30, 2014, the Bank operated 74 retail branches and 11 mortgage offices in select markets in Georgia, Alabama, Florida and South Carolina. Our business model capitalizes on the efficiencies of a large financial services company while still providing the community with the personalized banking service expected by our customers. We manage our Bank through a balance of decentralized management responsibilities and efficient centralized operating systems, products and loan underwriting standards. The Company’s Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within the Company’s established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of their market.

The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended September 30, 2014 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto and the report of our registered independent public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Newly Issued Accounting Pronouncements

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

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

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

NOTE 2 – BUSINESS COMBINATIONS

Coastal Bankshares, Inc.

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

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

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


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

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

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

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

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

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

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

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

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

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

Fair value of total consideration transferred	$	37,270

Explanation of fair value adjustments

(a)

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

(b)

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

(c)

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

(d)

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

(e)

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

(f)

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

(g)

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

(h)

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

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

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


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

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


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

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

Total purchased credit-impaired loans acquired	$	29,280

Prosperity Banking Company

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

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

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


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

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

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

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

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

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

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

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

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

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

Fair value of total consideration transferred	$	24,791

Explanation of fair value adjustments

(a)

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

(b)

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

(c)

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

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

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

(f)

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

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

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

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

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

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


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

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


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

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

Total purchased credit-impaired loans acquired	$	67,165

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

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


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

Ending balance	$	92,001		$	67,165	$	—

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


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

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

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


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

Ending balance	$	29,064		$	26,189	$	—

NOTE 3 – INVESTMENT SECURITIES

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

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


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

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

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

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

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

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

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


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

	$	524,792	$	529,509

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

The following table details the gross unrealized losses and fair value of securities aggregated by category and duration of continuous unrealized loss position at September 30, 2014, December 31, 2013 and September 30, 2013.


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

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

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

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

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

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

Management and the Company’s Asset and Liability Committee (the “ALCO Committee”) evaluate securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. While the majority of the unrealized losses on debt securities relate to changes in interest rates, corporate debt securities have also been affected by reduced levels of liquidity and higher risk premiums. Occasionally, management engages independent third parties to evaluate the Company’s position in certain corporate debt securities to aid management and the ALCO Committee in its determination regarding the status of impairment. The Company believes that each investment poses minimal credit risk and further, that the Company does not intend to sell these investment securities at an unrealized loss position at September 30, 2014, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at September 30, 2014, these investments are not considered impaired on an other-than-temporary basis.

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

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


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

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

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

NOTE 4 – LOANS

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

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

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

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

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


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

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

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

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


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

	$	673,724	$	448,753	$	—

Covered loans are defined as loans that were acquired in FDIC-assisted transactions that are covered by a loss-sharing agreement with the FDIC. Covered loans totaling $313.6 million, $390.2 million and $417.6 million at September 30, 2014, December 31, 2013 and September 30, 2013, respectively, are not included in the above schedule.

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


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

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

Nonaccrual and Past Due Loans

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

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


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

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

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


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

	$	17,007	$	6,659	$	—

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


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

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

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


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

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


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

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


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

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

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


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

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


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

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

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


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

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


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

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


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

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

Impaired Loans

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

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


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

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

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

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

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

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

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


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

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


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

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


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

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

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


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

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

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

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

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

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

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


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

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


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

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

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


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

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

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

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

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

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

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


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

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


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

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


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

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

Credit Quality Indicators

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

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

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

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

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

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

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

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

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

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

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


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

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

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


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

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

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


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

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

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


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

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

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


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

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

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

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


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

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

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


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

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

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


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

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

Troubled Debt Restructurings

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

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

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

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

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

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

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


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

Total		88	$	17,261		32	$	3,227


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

Total		72	$	17,214		20	$	3,683


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

Total		64	$	17,024		16	$	3,150

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

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


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

Total		6	$	583		2	$	247

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

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


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

Total		114	$	22,757		23	$	2,249


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

Total		100	$	22,243		24	$	5,021


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

Total		96	$	20,981		26	$	7,414

Allowance for Loan Losses

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

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

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

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

The following table details activity in the allowance for loan losses by portfolio segment for the periods indicated. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.


	Commercial, financial & agricultural			Real estate – construction & development			Real estate – commercial & farmland			Real estate–residential			Consumer installment loans and Other			Purchased non-covered loans			Covered loans			Total
	(Dollars in Thousands)
Three months ended September 30, 2014:
Balance, June 30, 2014	$	2,185		$	5,431		$	8,317		$	5,166		$	1,155		$	—		$	—		$	22,254
Provision for loan losses		540			63			1,237			595			(862	)		4			92			1,669
Loans charged off		(191	)		(296	)		(953	)		(406	)		(129	)		(4	)		(376	)		(2,355	)
Recoveries of loans previously charged off		47			96			31			52			134			—			284			644

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

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

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

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

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

Loans:
Individually evaluated for impairment	$	1,549		$	3,078		$	17,129		$	11,860		$	—		$	—		$	—		$	33,616
Collectively evaluated for impairment		333,234			151,237			865,031			424,655			40,986			581,723			142,128			2,538,994
Acquired with deteriorated credit quality		—			—			—			—			—			92,001			171,461			263,462

Ending balance	$	334,783		$	154,315		$	882,160		$	436,515		$	40,986		$	673,724		$	313,589		$	2,836,072


	Commercial, financial & agricultural			Real estate – construction & development			Real estate – commercial & farmland			Real estate – residential			Consumer installment loans and Other			Purchased non-covered loans		Covered loans			Total
	(Dollars in Thousands)
Twelve months ended December 31, 2013:
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			—		1,539			11,486
Loans charged off		(1,759	)		(2,020	)		(3,571	)		(5,215	)		(719	)		—		(1,539	)		(14,823	)
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			381,588		173,190			2,134,029
Acquired with deteriorated credit quality		—			—			—			—			—			67,165		217,047			284,212

Ending balance	$	244,373		$	146,371		$	808,323		$	366,882		$	52,505		$	448,753	$	390,237		$	2,457,444


	Commercial, financial & agricultural			Real estate – construction & development			Real estate – commercial & farmland			Real estate – residential			Consumer installment loans and Other			Purchased non- covered loans		Covered loans			Total
	(Dollars in Thousands)
Three months ended September 30, 2013:
Balance, June 30, 2013	$	2,951		$	5,642		$	8,797		$	6,360		$	467		$	—	$	—		$	24,217
Provision for loan losses		(107	)		601			1,212			626			117			—		471			2,920
Loans charged off		(482	)		(367	)		(1,080	)		(1,323	)		(205	)		—		(471	)		(3,928	)
Recoveries of loans previously charged off		212			84			5			291			53			—		—			645

Balance, September 30, 2013	$	2,574		$	5,960		$	8,934		$	5,954		$	432		$	—	$	—		$	23,854

Nine months ended September 30, 2013:
Balance, January 1, 2013	$	2,439		$	5,343		$	9,157		$	5,898		$	756		$	—	$	—		$	23,593
Provision for loan losses		1,011			2,127			2,632			2,966			11			—		1,261			10,008
Loans charged off		(1,216	)		(1,598	)		(2,873	)		(3,430	)		(576	)		—		(1,261	)		(10,954	)
Recoveries of loans previously charged off		340			88			18			520			241			—		—			1,207

Balance, September 30, 2013	$	2,574		$	5,960		$	8,934		$	5,954		$	432		$	—	$	—		$	23,854

Period-end amount allocated to:
Loans individually evaluated for impairment	$	741		$	682		$	1,997		$	1,429		$	—		$	—	$	—		$	4,849
Loans collectively evaluated for impairment		1,833			5,278			6,937			4,525			432			—		—			19,005

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

Loans:
Individually evaluated for impairment	$	3,657		$	3,524		$	14,605		$	16,919		$	—		$	—	$	—		$	38,705
Collectively evaluated for impairment		241,334			128,753			784,544			339,001			56,930			—		186,060			1,736,622
Acquired with deteriorated credit quality		—			—			—			—			—			—		231,589			231,589

Ending balance	$	244,991		$	132,277		$	799,149		$	355,920		$	56,930		$	—	$	417,649		$	2,006,916

NOTE 5 – ASSETS ACQUIRED IN FDIC-ASSISTED ACQUISITIONS

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


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

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

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

At September 30, 2014, the Company’s FDIC loss-sharing receivable totaled $38.2 million, which is comprised of $21.5 million in indemnification asset (for reimbursements associated with anticipated losses in future quarters) and $16.7 million in current charge-offs and expenses already incurred but not yet submitted for reimbursement.

The following table summarizes components of all covered assets at September 30, 2014, December 31, 2013 and September 30, 2013 and their origin:


	Covered loans		Less: Fair value adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC loss-share receivable
As of September 30, 2014:
AUB	$	8,902	$	—	$	8.902	$	666	$	—	$	666	$	9,568	$	882
USB		13,576		351		13,225		2,134		48		2,086		15,311		(439	)
SCB		28,534		789		27,745		2,665		308		2,357		30,102		1,855
FBJ		22,421		2,346		20,075		1,578		90		1,488		21,563		2,138
DBT		75,683		8,531		67,152		9,804		1,024		8,780		75,932		9,337
TBC		25,577		1,465		24,112		3,552		394		3,158		27,270		2,542
HTB		54,317		5,761		48,556		3,477		1,239		2,238		50,794		7,152
OGB		48,889		4,160		44,729		2,244		39		2,205		46,934		5,803
CBG		67,273		8,180		59,093		7,195		1,290		5,905		64,998		8,963

Total	$	345,172	$	31,583	$	313,589	$	33,315	$	4,432	$	28,883	$	342,472	$	38,233


	Covered loans		Less: Fair value adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC loss-share receivable
As of December 31, 2013:
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		2,354		30,236		4,844		745		4,099		34,335		3,721
HTB		67,126		7,359		59,767		6,374		2,304		4,070		63,837		9,325
OGB		58,512		5,067		53,445		7,506		2,984		4,522		57,967		9,645
CBG		85,118		13,615		71,503		7,610		1,933		5,677		77,180		14,821

Total	$	443,322	$	53,085	$	390,237	$	55,827	$	9,934	$	45,893	$	436,130	$	65,441


	Covered loans		Less: Fair value adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC loss-share receivable
As of September 30, 2013:
AUB	$	19,336	$	915	$	18,421	$	3,338	$	3	$	3,335	$	21,756	$	3,704
USB		21,168		1,665		19,503		3,066		139		2,927		22,430		2,796
SCB		35,555		1,902		33,653		5,348		429		4,919		38,572		4,020
FBJ		27,222		3,965		23,257		1,582		170		1,412		24,669		4,990
DBT		116,685		21,739		94,946		19,720		1,639		18,081		113,027		23,955
TBC		35,588		2,573		33,015		5,912		843		5,069		38,084		4,315
HTB		70,156		8,273		61,883		6,998		2,445		4,553		66,436		11,065
OGB		63,794		6,766		57,028		9,921		3,918		6,003		63,031		9,458
CBG		92,755		16,812		75,943		8,299		2,046		6,253		82,196		17,460

Total	$	482,259	$	64,610	$	417,649	$	64,184	$	11,632	$	52,552	$	470,201	$	81,763

On the dates of acquisition, the Company estimated the future cash flows on each individual loan and made the necessary adjustments to reflect the asset at fair value. At each quarter end subsequent to the acquisition dates, the Company revises the estimates of future cash flows based on current information and makes the necessary adjustments to carrying value. Amounts reflected in the Company’s statement of earnings are net of indemnification provided under loss share agreements with the FDIC. The adjustments are performed on a loan-by-loan basis and have resulted in the following adjustments for the nine months ended September 30, 2014, the year ended December 31, 2013 and the nine months ended September 30, 2013:


Total Amounts	September 30, 2014		December 31, 2013		September 30, 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 to be accreted into income over remaining term of the loan)	$	16,070	$	51,003	$	50,703
Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		3,425		7,695		6,305

Amounts reflected in the Company’s Statement of Operations	September 30, 2014		December 31, 2013		September 30, 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 to be accreted into income over remaining term of the loan)	$	3,214	$	10,201	$	10,141
Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		685		1,539		1,261

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


(Dollars in Thousands)	September 30, 2014			December 31, 2013			September 30, 2013
Balance, January 1	$	217,047		$	282,737		$	282,737
Charge-offs, net of recoveries		(8,099	)		(35,306	)		(30,371	)
Additions due to acquisitions		—			—			—
Other (loan payments, transfers, etc.)		(37,487	)		(30,384	)		(20,777	)

Ending balance	$	171,461		$	217,047		$	231,589

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


(Dollars in Thousands)	September 30, 2014			December 31, 2013			September 30, 2013
Balance, January 1	$	173,190		$	228,602		$	228,602
Additions due to acquisitions		—			—			—
Loan payments, transfers, etc.		(31,062	)		(55,412	)		(42,316	)

Ending balance	$	142,128		$	173,190		$	186,286

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


(Dollars in Thousands)	September 30, 2014			December 31, 2013			September 30, 2013
Balance, January 1	$	25,493		$	16,698		$	16,698
Additions due to acquisitions		—			—			—
Accretion		(20,822	)		(42,208	)		(36,552	)
Other activity, net		16,070			51,003			50,703

Ending balance	$	20,741		$	25,493		$	30,849

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. As of September 30, 2014, December 31, 2013 and September 30, 2013, the Company has recorded a clawback liability of $5.9 million, $5.0 million and $5.0 million, respectively, which represents the obligation of the Company to reimburse the FDIC should actual losses be less than certain thresholds established in each loss share agreement. Changes in the FDIC shared-loss receivable for the nine months ended September 30, 2014, for the year ended December 31, 2013 and for the nine months ended September 30, 2013 are as follows:


(Dollars in Thousands)	September 30, 2014			December 31, 2013			September 30, 2013
Balance, January 1	$	65,441		$	159,724		$	159,724
Indemnification asset recorded in acquisitions		—			—			—
Payments received from FDIC		(18,509	)		(68,822	)		(58,240	)
Effect of change in expected cash flows on covered assets		(8,699	)		(25,461	)		(19,721	)

Ending balance	$	38,233		$	65,441		$	81,763

NOTE 6 – WEIGHTED AVERAGE SHARES OUTSTANDING

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


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
	(Share Data in Thousands)				(Share Data in Thousands)
Basic shares outstanding		26,773		23,901		25,705		23,883
Plus: Dilutive effect of ISOs		111		62		116		62
Plus: Dilutive effect of Restricted grants		277		353		278		353

Diluted shares outstanding		27,161		24,316		26,099		24,298

For the three month periods ended September 30, 2014 and 2013, the Company has excluded 112,000 and 289,000, respectively, potential common shares with strike prices that would cause them to be anti-dilutive. For the nine month periods ended September 30, 2014 and 2013, the Company has excluded 110,000 and 341,000, respectively, potential common shares with strike prices that would cause them to be anti-dilutive.

NOTE 7 – OTHER BORROWINGS

The Company has, from time to time, utilized certain borrowing arrangements with various financial institutions to fund growth in earning assets or provide additional liquidity when appropriate spreads can be realized. At September 30, 2014, December 31, 2013 and September 30, 2014, there were $147.4 million, $194.6 million and $5.0 million, respectively, outstanding borrowings with the Company’s correspondent banks.

Details of other borrowings, including contractual interest rates and maturity dates are included in the following table:


(Dollars in Thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Daily Rate Credit from Federal Home Loan Bank with a fixed interest rate of 0.36%	$	75,000	$	—	$	—
Advance from Federal Home Loan Bank with a fixed interest rate of 0.16%, due October 24, 2014		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 3.50% (3.73% at September 30, 2014) due in August 2016, secured by subsidiary bank stock		22,500		—		—
Advances under revolving credit agreement with a regional bank with interest at 90-day LIBOR plus 4.00% (4.24% and 4.27% at December 31, 2013 and September 30, 2013) due in August 2016, secured by subsidiary bank stock		—		10,000		5,000
Advance from correspondent bank with a fixed interest rate of 4.50%, due November 27, 2017, secured by subsidiary bank loan receivable		4,909		—		—
Subordinated debt issued by Prosperity Bank due June 2016 with an interest rate of 90-day LIBOR plus 1.60% (1.83% and 1.84% at September 30, 2014 and December 31, 2013)		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% and 1.99% at September 30, 2014 and December 31, 2013)		15,000		14,572		—

Total	$	147,409	$	194,572	$	5,000

The advances from the Federal Home Loan Bank (“FHLB”) are collateralized by a blanket lien on all first mortgage loans and other specific loans in addition to FHLB stock. At September 30, 2014, $320.8 million was available for borrowing on lines with the FHLB.

As of September 30, 2014, the Company maintained credit arrangements with various financial institutions to purchase federal funds up to $60 million.

The Company also participates in the Federal Reserve discount window borrowings. At September 30, 2014, the Company had $584.1 million of loans pledged at the Federal Reserve discount window and had $425.1 million available for borrowing.

NOTE 8 – COMMITMENTS

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

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

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

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

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

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


(Dollars in Thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Commitments to extend credit	$	332,808	$	257,195	$	208,303
Standby letters of credit	$	9,168	$	7,665	$	6,954
Mortgage interest rate lock commitments	$	2,295	$	1,180	$	2,506

NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income for the Company consists of changes in net unrealized gains and losses on investment securities available for sale and interest rate swap derivatives. The following tables present a summary of the accumulated other comprehensive income balances, net of tax, as of September 30, 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		—			(90	)		(90	)
Current year changes		(489	)		4,847			4,358

Balance, September 30, 2014	$	908		$	3,066		$	3,974


(Dollars in Thousands)	Unrealized Gain (Loss) on Derivatives			Unrealized Gain (Loss) on Securities			Accumulated Other Comprehensive Income (Loss)
Balance, January 1, 2013	$	(23	)	$	6,630		$	6,607
Reclassification for gains included in net income		—			(111	)		(111	)
Current year changes		1,098			(8,125	)		(7,027	)

Balance, September 30, 2013	$	1,075		$	(1,606	)	$	(531	)

NOTE 10 – FAIR VALUE OF FINANCIAL INSTRUMENTS

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

The Company has elected to record mortgage loans held-for-sale at fair value in order to eliminate the complexities and inherent difficulties of achieving hedge accounting and to better align reported results with the underlying economic changes in value of the loans and related hedge instruments. This election impacts the timing and recognition of origination fees and costs, as well as servicing value, which are now recognized in earnings at the time of origination. Interest income on mortgage loans held-for-sale is recorded on an accrual basis in the consolidated statement of earnings and comprehensive income under the heading “Interest income – interest and fees on loans”. The servicing value is included in the fair value of the Interest Rate Lock Commitments (“IRLCs”) with borrowers. The mark to market adjustments related to loans held-for-sale and the associated economic hedges are captured in mortgage banking activities. Net gains of $1.1 million and $2.1 million resulting from fair value changes of these mortgage loans were recorded in income during the three and nine month periods ending September 30, 2014, respectively. The amount does not reflect changes in fair values of related derivative instruments used to hedge exposure to market-related risks associated with these mortgage loans. The change in fair value of both mortgage loans held for sale and the related derivative instruments are recorded in “Mortgage banking activity” in the Consolidated Statements of Earnings and Comprehensive Income. The Company’s valuation of mortgage loans held for sale incorporates an assumption for credit risk; however, given the short-term period that the Company holds these loans, valuation adjustments attributable to instrument-specific credit risk is nominal. Interest income on mortgage loans held for sale measured at fair value is accrued as it is earned based on contractual rates and is reflected in loan interest income on the Consolidated Statements of Earnings and Comprehensive Income.

The following table summarizes the difference between the fair value and the principal balance for mortgage loans held for sale measured at fair value as of September 30, 2014, December 31, 213 and September 31, 2013:


	September 30, 2014		December 31, 2013		September 30, 2013
	(Dollars in Thousands)
Aggregate Fair Value of Mortgage Loans held for sale	$	110,059	$	67,278	$	69,634
Aggregate Unpaid Principal Balance	$	105,882	$	65,522	$	67,406
Past due loans of 90 days or more	$	—	$	—	$	—
Nonaccrual loans	$	—	$	—	$	—

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:

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

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

Other Investments: Federal Home Loan Bank (“FHLB”) stock is included in other investments at its original cost basis. It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

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

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

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.

FDIC Loss-Share Receivable: The fair value of the FDIC loss-share receivable is based on the net present value of projected future cash flows expected to be received from the FDIC under the provision of the loss-share agreements using a discount rate that is based on current market rates.

Accrued Interest Receivable/Payable: The carrying amount of accrued interest receivable and accrued interest payable approximates fair value.

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

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

Subordinated Deferrable Interest Debentures: The fair value of the Company’s variable rate trust preferred securities is based primarily upon discounted cash flows using rates for securities with similar terms and remaining maturities.

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 is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments are based on an expectation of future interest rates (forward curves derived from observable market interest rate curves).

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

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself or the counterparty. However, as of September 30, 2014, December 31, 2013 and September 30, 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 adjustment is not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.

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


			Fair Value Measurements at September 30, 2014 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Cash and due from banks	$	69,421	$	69,421	$	—	$	—	$	69,421
Federal funds sold and interest-bearing accounts	$	40,165	$	40,165	$	—	$	—	$	40,165
Loans, net	$	2,778,026	$	—	$	—	$	2,773,291	$	2,773,291
FDIC loss-share receivable	$	38,233	$	—	$	—	$	21,397	$	21,397
Accrued interest receivable	$	17,171	$	17,171	$	—	$	—	$	17,171
Financial liabilities:
Deposits		3,373,119		—		3,374,055		—		3,374,055
Securities sold under agreements to repurchase		32,351		32,351		—		—		32,351
Other borrowings		147,409		—		147,409		—		147,409
Accrued interest payable		1,444		1,444		—		—		1,444
Subordinated deferrable interest debentures		65,084		—		46,214		—		46,214


			Fair Value Measurements at December 31, 2013 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Cash and due from banks	$	62,955	$	62,955	$	—	$	—	$	62,995
Federal funds sold and interest-bearing accounts	$	204,984	$	204,984	$	—	$	—	$	204,984
Loans, net	$	2,392,521	$	—	$	—	$	2,404,909	$	2,404,909
FDIC loss-share receivable	$	65,441	$	—	$	—	$	61,317	$	61,317
Accrued interest receivable	$	15,071	$	15,071	$	—	$	—	$	15,071
Financial liabilities:
Deposits		2,999,231		—		3,000,061		—		3,000,061
Securities sold under agreements to repurchase		83,516		83,516		—		—		83,516
Other borrowings		194,572		—		194,572		—		194,572
Accrued interest payable		1,431		1,431		—		—		1,431
Subordinated deferrable interest debentures		55,466		—		36,277		—		36,277


			Fair Value Measurements at September 30, 2013 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Cash and due from banks	$	53,516	$	53,516	$	—	$	—	$	53,516
Federal funds sold and interest-bearing accounts	$	73,899	$	73,899	$	—	$	—	$	73,899
Loans, net	$	1,939,498	$	—	$	—	$	1,912,634	$	1,912,634
FDIC loss-share receivable	$	81,763	$	—	$	—	$	76,346	$	76,346
Accrued interest receivable	$	13,030	$	13,030	$	—	$	—	$	13,030
Financial liabilities:
Deposits		2,443,421		—		2,444,244		—		2,444,244
Securities sold under agreements to repurchase		20,255		20,255		—		—		20,255
Accrued interest payable		831		831		—		—		831
Subordinated Deferrable Interest Debentures		42,269		—		23,331		—		23,331

The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall as of September 30, 2014, December 31, 2013 and September 30, 2013 (dollars in thousands):


	Fair Value Measurements on a Recurring Basis As of September 30, 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	$	14,460	$	—	$	14,460	$	—
State, county and municipal securities		137,635		—		137,635		—
Corporate debt securities		10,965		—		8,465		2,500
Mortgage-backed securities		366,449		10,273		356,176		—
Mortgage loans held for sale		110,059		—		110,059		—
IRLCs and forward contracts		2,295		—		2,295		—

Total recurring assets at fair value	$	641,863	$	10,273	$	629,090	$	2,500

Derivative financial instruments	$	807	$	—	$	807	$	—

Total recurring liabilities at fair value	$	807	$	—	$	807	$	—


	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		—
IRLCs and forward contracts		1,180		—		1,180		—

Total recurring assets at fair value	$	554,693	$	183,941	$	368,752	$	2,000

Derivative financial instruments	$	370	$	—	$	370	$	—

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


	Fair Value Measurements on a Recurring Basis As of September 30, 2013
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. government agencies	$	13,917	$	—	$	13,917	$	—
State, county and municipal securities		112,939		4,460		108,479		—
Corporate debt securities		9,738		—		7,738		2,000
Mortgage-backed securities		175,654		9,375		166,279		—
Mortgage loans held for sale		69,634		—		69,634		—
IRLCs and forward contracts		2,506		—		2,506		—

Total recurring assets at fair value	$	384,388	$	13,835	$	368,553	$	2,000

Derivative financial instruments	$	972	$	—	$	972	$	—

Total recurring liabilities at fair value	$	972	$	—	$	972	$	—

The following table is a presentation of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy as of September 30, 2014, December 31, 2013 and September 30, 2013 (dollars in thousands):


	Fair Value Measurements on a Nonrecurring Basis As of September 30, 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	$	35,834	$	—	$	—	$	35,834
Other real estate owned		35,320		—		—		35,320
Purchased, non-covered other real estate owned		13,660		—		—		13,660
Covered other real estate owned		28,883		—		—		28,883

Total nonrecurring assets at fair value	$	113,697	$	—	$	—	$	113,697


	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 other real estate owned		4,276		—		—		4,276
Covered other real estate owned		45,893		—		—		45,893

Total nonrecurring assets at fair value	$	126,066	$	—	$	—	$	126,066


	Fair Value Measurements on a Nonrecurring Basis As of September 30, 2013
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans carried at fair value	$	43,564	$	—	$	—	$	43,564
Other real estate owned		39,978		—		—		39,978
Covered other real estate owned		52,552		—		—		52,552

Total nonrecurring assets at fair value	$	136,094	$	—	$	—	$	136,094

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

For the nine months ended September 30, 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 as of September 30, 2014.


Measurements	Fair Value at September 30, 2014		Valuation Technique	Unobservable Inputs	Range
	(Dollars in Thousands)
Nonrecurring:
Impaired loans	$	35,834	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	4.00% - 90.00%
Other real estate owned	$	35,320	Third party appraisals	Collateral discounts and estimated costs to sell	10.00% - 90.00%
Purchased non-covered other real estate owned	$	13,660	Third party appraisals	Collateral discounts and estimated costs to sell	22.00% - 94.00%
Covered real estate owned	$	28,883	Third party appraisals	Collateral discounts and estimated costs to sell	10.00% - 90.00%
Recurring:
Investment securities available for sale	$	2,500	Discounted par values	Credit quality of underlying issuer	0.00%

The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets and liabilities as of December 31, 2013.


Measurements	Fair Value at December 31, 2013		Valuation Technique	Unobservable Inputs	Range
	(Dollars in Thousands)
Nonrecurring:
Impaired loans	$	42,546	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	4.00% - 75.00%
Other real estate owned	$	33,351	Third party appraisals	Collateral discounts and estimated costs to sell	10.00% - 74.00%
Purchased, non-covered loans	$	448,753	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	1.00% - 40.00%
Purchased non-covered other real estate owned	$	4,276	Third party appraisals	Collateral discounts and estimated costs to sell	15.00% - 63.00%
Covered loans	$	390,237	Third party appraisals and discounted cash flows	Collateral discounts Discount rate	1.75% - 75.00%
Covered real estate owned	$	45,893	Third party appraisals	Collateral discounts and estimated costs to sell	10.00% - 86.00%
Recurring:
Investment securities available for sale	$	2,000	Discounted par values	Credit quality of underlying issuer	0.00%

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 September 30, 2014 and 2013:


	Three Months Ended September 30, 2014						Three Months Ended September 30, 2013
	Retail Banking		Mortgage Banking		Total		Retail Banking		Mortgage Banking		Total
	(Dollars in Thousands)
Net interest income	$	36,785	$	2,347	$	39,132	$	28,089	$	1,231	$	29,320
Provision for loan losses		994		675		1,669		2,920		—		2,920
Noninterest income		10,766		7,135		17,901		7,054		5,234		12,288
Noninterest expense:
Salaries and employee benefits		15,817		4,409		20,226		10,799		3,613		14,412
Equipment and occupancy expenses		4,301		368		4,669		3,029		120		3,149
Data processing and telecommunications expenses		3,622		306		3,928		2,908		164		30,72
Other expenses		8,887		869		9,756		7,473		643		8,116

Total noninterest expense		32,627		5,952		38,579		24,209		4,540		28,749

Income before income tax expense		13,930		2,855		16,785		8,014		1,925		9,939
Income tax expense		4,123		999		5,122		2,588		674		3,262

Net income		9,807		1,856		11,663		5,426		1,251		6,677
Less preferred stock dividends		—		—		—		443		—		443

Net income available to common shareholders	$	9,807	$	1,856	$	11,663	$	4,983	$	1,251	$	6,234

Total assets	$	3,772,050	$	227,358	$	3,999,408	$	2,707,200	$	111,302	$	2,818,502
Stockholders’ equity		309,904		43,926		353,830		250,863		39,493		290,356

The following tables present selected financial information with respect to the Company’s reportable business segments for the nine- month periods ended September 30, 2014 and 2013:


	Nine Months Ended September 30, 2014						Nine Months Ended September 30, 2013
	Retail Banking		Mortgage Banking		Total		Retail Banking		Mortgage Banking		Total
	(Dollars in Thousands)
Net interest income	$	104,094	$	4,786	$	108,880	$	84,372	$	2,762	$	87,134
Provision for loan losses		4,085		675		4,760		10,008		—		10,008
Noninterest income		27,173		19,301		46,474		20,333		14,699		35,032
Noninterest expense:
Salaries and employee benefits		42,648		11,914		54,562		32,314		9,285		41,599
Equipment and occupancy expenses		11,834		970		12,804		8,575		483		9,058
Data processing and telecommunications expenses		10,551		771		11,322		8,013		465		8,478
Other expenses		27,452		2,996		30,448		22,807		2,379		25,186

Total noninterest expense		92,485		16,651		109,136		71,709		12,612		84,321

Income before income tax expense		34,697		6,761		41,458		22,988		4,849		27,837
Income tax expense		10,949		2,366		13,315		7,500		1,697		9,197

Net income		23,748		4,395		28,143		15,488		3,152		18,640
Less preferred stock dividends		286		—		286		1,326		—		1,326

Net income available to common shareholders	$	23,462	$	4,395	$	27,857	$	14,162	$	3,152	$	17,314

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

Cautionary Note Regarding Any Forward-Looking Statements

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

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

Overview

The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated balance sheet as of September 30, 2014 as compared to December 31, 2013 and operating results for the three-and nine-month periods ended September 30, 2014 and 2013. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

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


(in thousands, except share data, taxable equivalent)	Third Quarter 2014			Second Quarter 2014			First Quarter 2014			Fourth Quarter 2013			Third Quarter 2013			For Nine Months Ended
(in thousands, except share data, taxable equivalent)	Third Quarter 2014			Second Quarter 2014			First Quarter 2014			Fourth Quarter 2013			Third Quarter 2013			September 30, 2014			September 30, 2013
Results of Operations:
Net interest income	$	39,132		$	35,264		$	34,484		$	29,051		$	29,320		$	108,880		$	87,134
Net interest income (tax equivalent)		39,608			35,626			34,808			29,325			29,542			110,042			87,902
Provision for loan losses		1,669			1,365			1,726			1,478			2,920			4,760			10,008
Non-interest income		17,901			15,819			12,754			11,517			12,288			46,474			35,032
Non-interest expense		38,579			37,318			33,239			37,624			28,749			109,136			84,321
Income tax expense		5,122			4,270			3,923			88			3,262			13,315			9,197
Preferred stock dividends		—			—			286			412			443			286			1,326
Net income available to common shareholders		11,663			8,130			8,064			966			6,234			27,857			17,314
Selected Average Balances:
Mortgage loans held for sale	$	83,751		$	54,517		$	49,397		$	65,683		$	61,249		$	62,506		$	107,658
Loans, net of unearned income		1,795,059			1,706,564			1,639,672			1,602,942			1,564,311			1,697,559			1,458,988
Purchased non-covered loans		688,452			433,249			441,138			43,900			—			538,802			—
Covered loans		324,498			354,766			379,460			401,045			427,482			352,707			454,361
Investment securities		525,739			468,129			462,343			327,993			312,541			485,636			325,430
Earning assets		3,489,563			3,075,204			3,091,546			2,625,178			2,439,771			3,219,288			2,422,786
Assets		3,969,893			3,494,466			3,521,588			2,937,434			2,806,799			3,663,696			2,837,758
Deposits		3,382,810			3,010,142			2,975,305			2,552,819			2,439,150			3,124,245			2,466,013
Common shareholders’ equity		350,733			309,696			290,462			248,429			246,489			319,435			249,630
Period-End Balances:
Mortgage loans held for sale	$	110,059		$	81,491		$	51,693		$	67,278		$	69,634		$	110,059		$	69,634
Loans, net of unearned income		1,848,759			1,770,059			1,695,382			1,618,454			1,589,267			1,848,759			1,589,267
Purchased non-covered loans		673,724			702,131			437,269			448,753			—			673,724			—
Covered loans		313,589			331,250			372,694			390,237			417,649			313,589			417,649
Earning assets		3,515,805			3,465,361			3,062,428			3,215,941			2,462,697			3,515,805			2,462,697
Total assets		3,999,408			3,973,135			3,487,984			3,667,649			2,818,502			3,999,408			2,818,502
Total deposits		3,373,119			3,389,035			3,010,647			2,999,231			2,443,421			3,373,119			2,443,421
Common shareholders’ equity		353,830			343,399			300,030			288,699			262,418			353,830			262,418
Per Common Share Data:
Earnings per share—basic	$	0.44		$	0.32		$	0.32		$	0.04		$	0.26		$	1.08		$	0.72
Earnings per share—diluted		0.43			0.32			0.32			0.04			0.26			1.07			0.71
Common book value per share		13.22			12.83			11.93			11.50			10.98			13.22			10.98
End of period shares outstanding		26,774,402			26,771,821			25,159,073			25,098,427			23,907,509			26,774,402			23,907,509
Weighted average shares outstanding
Basic		26,773,033			25,180,665			25,144,342			24,021,447			23,900,665			25,705,313			23,882,539
Diluted		27,160,886			25,572,405			25,573,320			24,450,619			24,315,821			26,099,413			24,297,695
Market Price:
High closing price	$	24.04		$	23.90		$	24.00		$	21.42		$	19.79			24.04			19.79
Low closing price		21.00			19.73			19.86			17.69			17.35			19.73			12.79
Closing price for quarter		21.95			21.56			23.30			21.11			18.38			21.95			18.38
Average daily trading volume		79,377			79,038			103,279			94,636			75,545			87,019			60,457
Closing price to book value		1.66			1.68			1.95			1.84			1.67			1.66			1.67
Performance Ratios:
Return on average assets		1.17	%		0.93	%		0.96	%		0.19	%		0.94	%		1.01	%		0.89	%
Return on average common equity		13.19	%		10.53	%		11.66	%		2.20	%		10.75	%		10.73	%		10.11	%
Average loans to average deposits		85.48	%		84.68	%		84.35	%		82.79	%		84.17	%		84.87	%		81.79	%
Average equity to average assets		8.83	%		8.86	%		9.04	%		9.41	%		9.78	%		8.94	%		9.78	%
Net interest margin (tax equivalent)		4.50	%		4.65	%		4.57	%		4.43	%		4.80	%		4.57	%		4.85	%
Efficiency ratio (tax equivalent)		67.64	%		73.05	%		70.36	%		92.74	%		69.09	%		70.25	%		69.02	%

Results of Operations for the Three Months Ended September 30, 2014 and 2013

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $11.7 million, or $0.43 per diluted share, for the quarter ended September 30, 2014, compared to $6.2 million, or $0.26 per diluted share, for the same period in 2013. The Company’s return on average assets and average shareholders’ equity of 1.17% and 13.19%, respectively, in the third quarter of 2014, compared to 0.94% and 10.75%, respectively, in the third 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 during the third quarter of 2014 and 2013, respectively:


	Retail Banking		Mortgage Banking		Total
	(in thousands)
For the three months ended September 30, 2014:
Net interest income	$	36,785	$	2,347	$	39,132
Provision for loan losses		994		675		1,669
Non-interest income		10,766		7,135		17,901
Non-interest expense
Salaries and employee benefits		15,817		4,409		20,226
Occupancy		4,301		368		4,669
Data processing		3,622		306		3,928
Other expenses		8,887		869		9,756

Total non-interest expense		32,627		5,952		38,579

Income before income taxes		13,930		2,855		16,785
Income tax expense		4,123		999		5,122
Net income		9,807		1,856		11,663
Preferred stock dividends		—		—		—

Net income available to common shareholders	$	9,807	$	1,856	$	11,663


	Retail Banking		Mortgage Banking		Total
	(in thousands)
For the three months ended September 30, 2013:
Net interest income	$	28,089	$	1,231	$	29,320
Provision for loan losses		2,920		—		2,920
Non-interest income		7,054		5,234		12,288
Non-interest expense
Salaries and employee benefits		10,799		3,613		14,412
Occupancy		3,029		120		3,149
Data processing		2,908		164		3,072
Other expenses		7,473		643		8,116

Total non-interest expense		24,209		4,540		28,749

Income before income taxes		8,014		1,925		9,939
Income tax expense		2,588		674		3,262
Net income		5,426		1,251		6,677
Preferred stock dividends		443		—		443

Net income available to common shareholders	$	4,983	$	1,251	$	6,234

Net Interest Income and Margins

The following tables set forth the amount of our interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net interest margin on average interest-earning assets. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 35% federal tax rate.


	Quarter Ended September 30,
	2014							2013
	Average Balance		Interest Income/ Expense		Average Yield/ Rate Paid			Average Balance		Interest Income/ Expense		Average Yield/ Rate Paid
	(in Thousands)
ASSETS
Interest-earning assets:
Loans	$	2,891,760	$	39,912		5.48	%	$	2,053,042	$	29,733		5.75	%
Investment securities		533,948		3,704		2.75			320,305		2,195		2.72
Short-term assets		63,855		47		0.29			66,424		44		0.26

Total interest- earning assets		3,489,563		43,663		4.96			2,439,771		31,972		5.20

Noninterest-earning assets		480,330							367,028

Total assets	$	3,969,893						$	2,806,799

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings and interest-bearing demand deposits	$	1,760,108	$	1,148		0.26	%	$	1,316,890	$	883		0.27	%
Time deposits		815,286		1,392		0.68			653,672		1,142		0.69
Other borrowings		47,346		558		4.68			1,739		20		4.56
FHLB advances		55,435		51		0.36			—		—		—
Federal funds purchased and securities sold under agreements to repurchase		44,316		39		0.35			18,446		26		0.56
Subordinated deferrable interest debentures		64,953		866		5.29			42,269		358		3.36

Total interest-bearing liabilities		2,787,444		4,054		0.58			2,033,016		2,429		0.47

Demand deposits		807,416							468,588
Other liabilities		24,300							15,939
Stockholders’ equity		350,733							289,256

Total liabilities and stockholders’ equity	$	3,969,893						$	2,806,799

Interest rate spread						4.39	%						4.73	%

Net interest income			$	39,609						$	29,543

Net interest margin						4.50	%						4.80	%

On a tax equivalent basis, net interest income for the third quarter of 2014 was $39.6 million, an increase of $10.1 million compared to $29.5 million reported in the same quarter in 2013. The higher net interest income is a result of the acquisition of Prosperity Bank during the fourth quarter of 2013 and the acquisition of Coastal Bank in the second quarter of 2014, along with steady yields on the loan portfolio and continued low rates in the Company’s cost of funds. The Company’s net interest margin decreased during the third quarter of 2014 to 4.50%, compared to 4.65% during the second quarter of 2014 and 4.80% reported in the third quarter of 2013.

Total interest income, on a tax equivalent basis, during the third quarter of 2014 was $43.7 million compared to $32.0 million in the same quarter of 2013. Yields on earning assets fell slightly to 4.96%, compared to 5.20% reported in the third quarter of 2013. During the third quarter of 2014, loans comprised 82.9% of earning assets, compared to 84.1% in the same quarter of 2013. Increased lending activities have provided opportunities to grow the legacy loan portfolio. Yields on legacy loans decreased to 4.82% in the third quarter of 2014, compared to 5.36% in the same period of 2013. Covered loan yields declined from 7.65% in the third quarter of 2013 to 5.78% in the third quarter of 2014. The yield on purchased non-covered loans was 7.27% for the third quarter of 2014. Management anticipates improving economic conditions and increased loan demand will provide consistent interest income.

Total funding costs increased slightly to 0.45% in the third quarter of 2014, compared to 0.39% during the third quarter of 2013. The increase was driven by the increased cost of subordinated debentures acquired in the Prosperity and Coastal acquisitions. The average cost of subordinated debentures was 5.29% in the third quarter of 2014, compared to 3.37% in the third quarter of 2013. The subordinated debentures that are assumed in the acquisitions are recorded at fair value, which carries a current market rate higher than the Company’s previous subordinated debentures.

Deposit costs decreased from 0.33% in the third quarter of 2013 to 0.30% in the third quarter of 2014, while non- deposit funding costs increased from 2.57% in the third quarter of 2013 to 2.83% in the third quarter of 2014. Continued shifts in the funding mix toward noninterest-bearing demand and other lower cost deposit categories were the primary reason for the decline in deposit costs. Ongoing efforts to maintain the percentage of funding from transaction deposits have succeeded such that non-CD deposits averaged 76.0% of total deposits in the third quarter of 2014, compared to 73.2% during the third quarter of 2013. Lower costs on deposits were realized due mostly to the lower rate environment and the Company’s ability to rely less 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 third quarter of 2014 and 2013 are shown below:


(Dollars in Thousands)	September 30, 2014					September 30, 2013
	Average Balance		Average Cost			Average Balance		Average Cost
NOW	$	743,352		0.17	%	$	573,088		0.17	%
MMDA		861,197		0.36	%		639,304		0.38	%
Savings		155,559		0.11	%		104,498		0.11	%
Retail CDs < $100,000		439,150		0.54	%		290,771		0.55	%
Retail CDs > $100,000		370,166		0.80	%		349,931		0.72	%
Brokered CDs		5,970		3.12	%		12,970		3.09	%

Interest-bearing deposits	$	2,575,394		0.39	%	$	1,970,562		0.41	%

Provision for Loan Losses and Credit Quality

The Company’s provision for loan losses during the third quarter of 2014 amounted to $1.7 million, compared to $1.4 million in the second quarter of 2014 and $2.9 million in the third quarter of 2013. Although the Company has experienced improving trends in criticized and classified assets for several quarters, provision for loan losses continues to be required to account for loan growth and continued devaluation of real estate collateral. At September 30, 2014, classified loans still accruing totaled $43.5 million, compared to $31.3 million at September 30, 2013. This increase is predominately due to the addition of classified loans in the Prosperity Bank and Coastal Bank acquisitions. Non-accrual loans, excluding purchased non-covered and covered loans, totaled $22.8 million at September 30, 2014, a 28.1% decrease from $31.7 million reported at the end of the third quarter of 2013. Nonaccrual purchased non-covered loans totaled $17.0 million at September 30, 2014. There were no nonaccrual purchased non-covered loans at the end of the third quarter of 2013.

At September 30, 2014, other real estate owned (excluding purchased non-covered and covered OREO) totaled $35.3 million, compared to $35.4 million at June 30, 2014 and $38.0 million at September 30, 2013. 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 six to twelve months, the liquidation of properties occurs between 85% and 100% of current book value. Certain properties, mostly raw land and subdivision lots, have extended marketing periods because of excessive inventory and record low home building activity. At the end of the third quarter of 2014, total non-performing assets were 2.22% of total assets, compared to 2.00% at December 31, 2013 and 2.47% at September 30, 2013. This increase is due to the Prosperity Bank and Coastal Bank acquisitions completed in the fourth quarter of 2013 and second quarter of 2014, respectively. Management continues to aggressively identify and resolve problem assets while seeking quality credits to grow the loan portfolio.

Net charge-offs on loans during the third quarter of 2014 were $1.6 million, or 0.35% of loans on an annualized basis, compared to $2.8 million, or 0.70% of loans, in the third quarter of 2013. The Company’s allowance for loan losses at September 30, 2014 was $22.2 million, or 1.20% of loans (excluding purchased non-covered and covered loans), compared to $23.9 million, or 1.50% of loans (excluding purchased non-covered and covered loans), at September 30, 2013.

Noninterest Income

Total non-interest income for the third quarter of 2014 was $17.9 million, compared to $12.3 million in the third 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 levels of production. Service charges on deposit accounts in the third quarter of 2014 increased to $6.7 million, compared to $4.9 million in the third 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 and Coastal Bank during the second quarter of 2014, along with higher balances in accounts subject to service charges.

Noninterest Expense

Total non-interest expenses for the third quarter of 2014 increased to $38.6 million, compared to $28.7 million in the same quarter in 2013. Increases in noninterest expenses were primarily the result of the acquisition of Prosperity Bank during the fourth quarter of 2013, the acquisition of Coastal Bank in the second quarter of 2014 and additional expenses related to increases in mortgage volume. Salaries and benefits increased $5.8 million when compared to the third quarter of 2013. Occupancy and equipment expense increased during the quarter from $3.1 million in the third quarter of 2013 to $4.7 million in the third quarter of 2014. Data processing and telecommunications expenses increased to $3.9 million for the third quarter of 2014 from $3.1 million for the same period in 2013. Credit resolution related expenses, including problem loan and OREO expense and OREO write-downs and losses, increased to $3.2 million in the third quarter of 2014, compared to $3.0 million in the third quarter of 2013.

Income Taxes

Income tax expense is influenced by the amount of taxable income, the amount of tax-exempt income and the amount of non-deductible expenses. For the third quarter of 2014, the Company reported income tax expense of $5.1 million, compared to $3.3 million in the same period of 2013. The Company’s effective tax rate for the three months ending September 30, 2014 and 2013 was 30.5% and 32.8%, respectively.

Results of Operations for the Nine Months Ended September 30, 2014 and 2013

Ameris reported net income available to common shareholders of $27.9 million, or $1.07 per diluted share, for the nine months ended September 30, 2014, compared to $17.3 million, or $0.71 per diluted share, for the same period in 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 during the first nine months of 2014 and 2013, respectively:


	Retail Banking		Mortgage Banking		Total
	(in thousands)
For the nine months ended September 30, 2014:
Net interest income	$	104,094	$	4,786	$	108,880
Provision for loan losses		4,085		675		4,760
Non-interest income		27,173		19,301		46,474
Non-interest expense
Salaries and employee benefits		42,648		11,914		54,562
Occupancy		11,834		970		12,804
Data processing		10,551		771		11,322
Other expenses		27,452		2,996		30,448

Total non-interest expense		92,485		16,651		109,136

Income before income taxes		34,697		6,761		41,458
Income tax expense		10,949		2,366		13,315
Net income		23,748		4,395		28,143
Preferred stock dividends		286		—		286

Net income available to common shareholders	$	23,462	$	4,395	$	27,857


	Retail Banking		Mortgage Banking		Total
	(in thousands)
For the nine months ended September 30, 2013:
Net interest income	$	84,372	$	2,762	$	87,134
Provision for loan losses		10,008		—		10,008
Non-interest income		20,333		14,699		35,032
Non-interest expense
Salaries and employee benefits		32,314		9,285		41,599
Occupancy		8,575		483		9,058
Data processing		8,013		465		8,478
Other expenses		22,807		2,379		25,186

Total non-interest expense		71,709		12,612		84,321

Income before income taxes		22,988		4,849		27,837
Income tax expense		7,500		1,697		9,197
Net income		15,488		3,152		18,640
Preferred stock dividends		1,326		—		1,326

Net income available to common shareholders	$	14,162	$	3,152	$	17,314

Interest Income

Interest income, on a tax equivalent basis, for the nine months ended September 30, 2014 was $120.8 million, an increase of $25.5 million when compared to $95.3 million for the same period in 2013. Average earning assets for the nine-month period increased $796.5 million to $3.22 billion as of September 30, 2014, compared to $2.42 billion as of September 30, 2013. The increase in average earning assets is due to the Prosperity Bank acquisition completed in December 2013 and the Coastal Bank acquisition completed in June 2014. Yield on average earning assets was 5.02% for the nine months ended September 30, 2014, compared to 5.26% in the first nine months of 2013.

Interest Expense

Total interest expense for the nine months ended September 30, 2014 amounted to $10.8 million, reflecting a $3.4 million increase from the $7.4 million expense recorded in the same period of 2013. During the nine-month period ended September 30, 2014, the Company’s funding costs increased slightly to 0.43% from 0.39% reported in 2013. Deposit costs decreased to 0.30% during the nine month period ended September 30, 2014, compared to 0.34% during the same period in 2013. Total non-deposit funding costs increased from 2.28% during the first nine months of 2013 to 2.66% during the first nine months of 2014.

Net Interest Income


	Nine Months Ended September 30,
	2014							2013
	Average Balance		Interest Income/ Expense		Average Yield/ Rate Paid			Average Balance		Interest Income/ Expense		Average Yield/ Rate Paid
	(in Thousands)
ASSETS
Interest-earning assets:
Loans	$	2,651,574	$	110,138		5.55	%	$	2,017,007	$	88,602		5.87	%
Investment securities		493,736		10,515		2.85			332,585		6,582		2.65
Short-term assets		73,978		176		0.32			73,194		158		0.29

Total interest- earning assets		3,219,288		120,829		5.02			2,422,786		95,342		5.26

Noninterest-earning assets		444,408							414,972

Total assets	$	3,663,696						$	2,837,758

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings and interest-bearing demand deposits	$	1,645,535	$	3,208		0.26	%	$	1,313,569	$	2,570		0.26	%
Time deposits		760,203		3,720		0.65			676,025		3,764		0.74
Other borrowings		37,607		1,381		4.91			586		20		4.56
FHLB advances		50,751		114		0.30			—		—		—
Federal funds purchased and securities sold under agreements to repurchase		47,099		123		0.35			22,024		94		0.57
Subordinated deferrable interest debentures		58,647		2,240		5.11			42,269		991		3.13

Total interest-bearing liabilities		2,599,842		10,786		0.55			2,054,473		7,439		0.48

Demand deposits		718,505							476,419
Other liabilities		17,812							19,762
Stockholders’ equity		327,537							287,104

Total liabilities and stockholders’ equity	$	3,663,696						$	2,837,758

Interest rate spread						4.46	%						4.78	%

Net interest income			$	110,043						$	87,903

Net interest margin						4.57	%						4.85	%

For the year-to-date period ending September 30, 2014, the Company reported $110.1 million of net interest income on a tax equivalent basis, compared to $87.96 million of net interest income for the same period in 2013. The average balance of earning assets increased 32.9%, from $2.4 billion during the first nine months of 2013 to $3.2 billion during the first nine months of 2014. The Company’s net interest margin decreased to 4.57% in the nine month period ending September 30, 2014, compared to 4.85% in the same period in 2013.

Provision for Loan Losses

The provision for loan losses decreased to $4.8 million for the nine months ended September 30, 2014, compared to $10.0 million in the same period in 2013. Non-performing assets (excluding covered assets) totaled $88.8 million at September 30, 2014, compared to $69.7 million at September 30, 2013. The majority of the increase is due to the Prosperity acquisition in the fourth quarter of 2013. Non-performing assets as a percent of total assets decreased from 2.47% at September 30, 2013 to 2.22% at September 30, 2014. For the nine-month period ended September 30, 2014, the Company had net charge-offs totaling $4.2 million, compared to $8.5 million for the same period in 2013. Annualized net charge-offs as a percentage of loans (excluding purchased non-covered and covered loans) decreased to 0.31% during the first nine months of 2014, compared to 0.71% during the first nine months of 2013.

Noninterest Income

Non-interest income for the first nine months of 2014 was $46.5 million, compared to $35.0 million in the same period in 2013. Service charges on deposit accounts increased approximately $3.6 million to $18.1 million in the first nine months of 2014, compared to $14.5 million in the same period in 2013. This increase was driven by the growth of core accounts through the acquisition of Prosperity Bank during the fourth quarter of 2013 and Coastal Bank during the second quarter of 2014, along with higher balances in accounts subject to service charges. Income from mortgage banking activity increased from $14.7 million in the first nine months of 2013 to $19.5 million in the first nine months of 2014, due to an increased number of mortgage bankers and higher levels of production.

Noninterest Expense

Total operating expenses for the first nine months of 2014 increased to $109.1 million, compared to $84.3 million in the same period in 2013. During the first nine months of 2014, the Company recorded $3.3 million of merger charges related to the Coastal acquisition. Other increases in noninterest expenses were primarily the result of the acquisition of Prosperity Bank during the fourth quarter of 2013, the acquisition of Coastal Bank during the second quarter of 2014 and additional expenses related to increases in mortgage volume. Salaries and benefits increased $13.0 million when compared to the first nine months of 2013. Occupancy and equipment expenses for the first nine months of 2014 amounted to $12.8 million, representing an increase of $3.7 million from the same period in 2013. Data processing and telecommunications expenses increased from $8.5 million in the first nine months of 2013 to $11.3 million in the first nine months of 2014. Credit resolution related expenses, including problem loan and OREO expense and OREO write-downs and losses, decreased to $8.2 million in the first nine months of 2014, compared to $10.2 million in the first nine months of 2013.

Income Taxes

In the first nine months of 2014, the Company recorded income tax expense of $13.3 million, compared to $9.2 million in the same period of 2013. The Company’s effective tax rate for the nine months ended September 30, 2014 and 2013 was 32.1% and 33.0%, respectively.

Financial Condition as of September 30, 2014

Securities

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

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

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

Management evaluates securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market concerns warrant such evaluation. Substantially all of the unrealized losses on debt securities are related to changes in interest rates and do not affect the expected cash flows of the issuer or underlying collateral. All unrealized losses are considered temporary because each security carries an acceptable investment grade and the Company does not intend to sell these investment securities at an unrealized loss position at September 30, 2014, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at September 30, 2014, these investments are not considered impaired on an other-than temporary basis.

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


	Book Value		Fair Value		Yield			Modified Duration		Estimated Cash Flows 12 months
	Dollars in Thousands
September 30, 2014:
U.S. government agencies	$	14,951	$	14,460		1.85	%		5.22	$	—
State and municipal securities		134,641		137,635		4.05	%		6.11		5,892
Corporate debt securities		10,801		10,965		6.401	%		7.38		1,250
Mortgage-backed securities		364,399		366,449		2.47	%		3.95		60,567

Total debt securities	$	524,792	$	529,509		2.94	%		4.61	$	67,709

September 30, 2013:
U.S. government agencies	$	14,945	$	13,917		1.85	%		5.91	$	—
State and municipal securities		112,643		112,939		3.62	%		5.58		5,104
Corporate debt securities		10,314		9,738		6.51	%		7.14		—
Mortgage-backed securities		176,818		175,654		2.67	%		4.05		27,818

Total debt securities	$	314,720	$	312,248		3.11	%		4.79	$	32,922

Loans and Allowance for Loan Losses

At September 30, 2014, gross loans outstanding (including mortgage loans held for sale and purchased non-covered and covered loans) were $2.95 billion, an increase from $2.52 billion reported at December 31, 2013 and $2.08 billion reported at September 30, 2013. Legacy loans (excluding purchased non-covered and covered loans) increased $230.3 million, from $1.62 billion at December 31, 2013 to $1.85 billion at September 30, 2014. Purchased non-covered loans increased $225.0 million, from $448.8 million at December 31, 2013 to $673.7 million at September 30, 2014. Covered loans decreased $76.6 million, from $390.2 million at December 31, 2013 to $313.6 million at September 30, 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 probable incurred losses in the loan portfolio. Based on a credit evaluation of the loan portfolio, management presents a monthly review of the allowance for loan losses to the Company’s Board of Directors. The review that management has developed primarily focuses on risk by evaluating individual loans in certain risk categories. These categories have also been established by management and take the form of loan grades. By grading the loan portfolio in this manner the Company’s management is able to effectively evaluate the portfolio by risk, which management believes is the most effective way to analyze the loan portfolio and thus analyze the adequacy of the allowance for loan losses.

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

For the nine-month period ended September 30, 2014, the Company recorded net charge-offs totaling $4.2 million, compared to $8.5 million for the period ended September 30, 2013. The provision for loan losses for the nine months ended September 30, 2014 decreased to $4.8 million, compared to $10.0 million during the nine-month period ended September 30, 2013. At the end of the third quarter of 2014, the allowance for loan losses totaled $22.2 million, or 1.20% of total legacy loans, compared to $22.4 million, or 1.38% of total legacy loans, at December 31, 2013 and $23.9 million, or 1.50% of total legacy loans, at September 30, 2013. The decrease in the allowance for loan losses as a percentage of non-covered loans reflects the improving credit quality trends in the loan portfolio and the reduced annualized charge-offs as a percentage of average loans ratio.

The following table presents an analysis of the allowance for loan losses for the nine months ended September 30, 2014 and 2013:


(Dollars in Thousands)	September 30, 2014			September 30, 2013
Balance of allowance for loan losses at beginning of period	$	22,377		$	23,593
Provision charged to operating expense		4,071			8,747
Charge-offs:
Commercial, financial and agricultural		1,099			1,216
Real estate – residential		1,339			3,430
Real estate – commercial and farmland		2,255			2,873
Real estate – construction and development		518			1,598
Consumer installment		343			576
Other		—			—

Total charge-offs		5,554			9,693

Recoveries:
Commercial, financial and agricultural		230			340
Real estate – residential		183			520
Real estate – commercial and farmland		183			18
Real estate – construction and development		300			88
Consumer installment		422			241
Other		—			—

Total recoveries		1,318			1,207

Net charge-offs		4,236			8,486

Balance of allowance for loan losses at end of period	$	22,212		$	23,854

Net annualized charge-offs as a percentage of average loans		0.31	%		0.71	%
Allowance for loan losses as a percentage of period end loans net of purchased loans		1.20	%		1.50	%

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 $313.6 million, $390.2 million and $417.6 million at September 30, 2014, December 31, 2013 and September 30, 2013, respectively. OREO that is covered by the loss-sharing agreements with the FDIC totaled $28.9 million, $45.9 million and $52.6 million at September 30, 2014, December 31, 2013 and September 30, 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 September 30, 2014, December 31, 2013 and September 30, 2013 was $38.2 million, $65.4 million and $81.8 million, respectively. Of the $38.2 million FDIC loss-sharing receivable at September 30, 2014, $21.5 million is in indemnification asset (for reimbursements associated with anticipated losses in future quarters) and $16.7 million is current charge-offs and expenses already incurred but not yet submitted for reimbursement.

The Bank initially recorded the loans at their fair values, taking into consideration certain credit quality, risk and liquidity marks. The Company believes its estimation of credit risk and its adjustments to the carrying balances of the acquired loans is adequate. If the Company determines that a loan or group of loans has deteriorated from its initial assessment of fair value, a reserve for loan losses will be established to account for that difference. During the nine months ended September 30, 2014, the year ended December 31, 2013 and the nine months ended September 30, 2013, the Company recorded provision for loan loss expense of $685,000, $1.5 million and $1.3 million, respectively, net of the FDIC loss share receivable, to account for losses where the initial estimate of cash flows was found to be excessive on loans acquired in FDIC-assisted transactions. If the Company determines that a loan or group of loans has improved from its initial assessment of fair value, then the increase in cash flows over those expected at the acquisition date is recognized as interest income prospectively, with an associated write off of the remaining indemnification asset over the shorter of the life of the loan or the loss share agreement.

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


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

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

Purchased Non-Covered Assets

Loans that were acquired in transactions that are not covered by the loss-sharing agreements with the FDIC (“purchased non-covered loans”) totaled $673.7 million and $448.8 million at September 30, 2014 and December 31, 2013, respectively. The Company did not have any purchased non-covered loans at September 30, 2013. OREO that was acquired in transactions and are not covered by the loss-sharing agreements with the FDIC totaled $13.7 million and $4.3 million at September 30, 2014 and December 31, 2013, respectively. The Company did not have any purchased non-covered OREO at September 30, 2013.

The Bank initially recorded the loans at their fair values, taking into consideration certain credit quality, risk and liquidity marks. The Company believes its estimation of credit risk and its adjustments to the carrying balances of the acquired loans is adequate. If the Company determines that a loan or group of loans has deteriorated from its initial assessment of fair value, a reserve for loan losses will be established to account for that difference. During the nine months ended September 30, 2014, the Company recorded provision for loan loss expense of $4,000 to account for losses where the initial estimate of cash flows was found to be excessive on purchased non-covered loans. The Company did not have any provision for loan loss expense during the twelve months ended December 31, 2013 related to purchased non-covered loans. If the Company determines that a loan or group of loans has improved from its initial assessment of fair value, then the increase in cash flows over those expected at the acquisition date is recognized as interest income prospectively.

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


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

	$	673,724	$	448,753	$	—

Non-Performing Assets

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

As of September 30, 2014, nonaccrual loans (excluding purchased non-covered and covered loans) totaled $22.8 million, a decrease of approximately $6.4 million since December 31, 2013. The decrease in nonaccrual loans is due to the success in the foreclosure and resolution process and a significant slowdown in the formation of new problem credits. Nonaccrual purchased non-covered loans totaled $17.0 million, an increase of approximately $10.3 million since December 31, 2013 due to the Coastal acquisition. Total non-performing assets as a percentage of total assets were 2.22%, 2.00% and 2.47% at September 30, 2014, December 31, 2013 and September 30, 2013, respectively.

Non-performing assets at September 30, 2014, December 31, 2013 and September 30, 2013 were as follows:


(Dollars in Thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Total nonaccrual loans (excluding purchased non-covered and covered loans)	$	22,810	$	29,203	$	31,720
Nonaccrual purchased non-covered loans		17,007		6,659		—
Accruing loans delinquent 90 days or more		—		—		—
Foreclosed assets (excluding purchased assets)		35,320		33,351		37,978
Purchased, non-covered other real estate owned		13,660		4,276		—

Total non-performing assets	$	88,797	$	73,489	$	69,698

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


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

Total		88	$	17,261		32	$	3,227


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

Total		72	$	17,214		20	$	3,683


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

Total		64	$	17,024		16	$	3,150

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 (defined as 30 days past due) under restructured terms at September 30, 2014, December 31, 2013 and September 30, 2013:


As of September 30, 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		6	$	271		2	$	493
Real estate – construction & development		9		1,881		6		232
Real estate – commercial & farmland		19		6,811		4		1,941
Real estate – residential		37		6,919		16		1,813
Consumer installment		7		29		14		98

Total		78	$	15,911		42	$	4,577


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 September 30, 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		3	$	508		4	$	546
Real estate – construction & development		6		1,881		3		74
Real estate – commercial & farmland		14		6,550		5		2,001
Real estate – residential		31		7,282		11		1,293
Consumer installment		2		37		1		2

Total		56	$	16,258		24	$	3,916

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


As of September 30, 2014	Accruing Loans				Non-Accruing Loans
Type of concession:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Forbearance of interest		13	$	2,197		1	$	31
Forgiveness of principal		6		2,426		—		—
Rate reduction only		17		7,350		4		509
Rate reduction, forbearance of interest		35		3,390		23		2,619
Rate reduction, forbearance of principal		17		1,898		3		39
Rate reduction, payment modification		—		—		1		29

Total		88	$	17,261		32	$	3,227


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 September 30, 2013	Accruing Loans				Non-Accruing Loans
Type of concession:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Forbearance of interest		9	$	2,135		2	$	101
Forgiveness of principal		3		1,479		1		145
Payment modification only		2		370		—		—
Rate reduction only		14		7,146		2		496
Rate reduction, forbearance of interest		18		2,878		10		2,379
Rate reduction, forbearance of principal		18		3,016		—		—
Rate reduction, payment modification		—		—		1		29

Total		64	$	17,024		16	$	3,150

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


As of September 30, 2014	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Warehouse		6	$	944		—	$	—
Raw land		5		1,258		1		29
Agricultural land		2		373		—		—
Hotel & motel		3		2,062		—		—
Office		4		1,639		—		—
Retail, including strip centers		5		1,700		2		1,672
1-4 family residential		50		8,638		14		943
Church		1		362		—		—
Automobile/equipment/inventory		11		47		14		540
Unsecured		1		238		1		43

Total		88	$	17,261		32	$	3,227


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 September 30, 2013	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance *(in thousands)*		#		Balance *(in thousands)*
Warehouse		3	$	1,065		1	$	176
Raw land		3		1,337		1		29
Agricultural land		2		380		—		—
Hotel & motel		3		2,219		—		—
Office		4		1,924		—		—
Retail, including strip centers		4		1,105		2		1,682
1-4 family residential		40		8,460		7		704
Life insurance policy		1		250		—		—
Automobile/equipment/inventory		3		36		4		509
Unsecured		1		248		1		50

Total		64	$	17,024		16	$	3,150

As of September 30, 2014, the Company had a balance of $583,000 in troubled debt restructurings included in purchased non-covered loans. The Company did not have any troubled debt restructurings included in purchased non-covered loans as of December 31, 2013 and September 30, 2013. The following table presents the amount of troubled debt restructurings by loan class of purchased non-covered loans, classified separately as accrual and non-accrual at September 30, 2014:


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

Total		6	$	583		2	$	247

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 (defined as 30 days past due) under restructured terms at September 30, 2014:


As of September 30, 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		—	$	—		—	$	—
Real estate – construction & development		1		305		—		—
Real estate – commercial & farmland		—		—		—		—
Real estate – residential		4		275		2		247
Consumer installment		1		3		—		—

Total		6	$	583		2	$	247

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 September 30, 2014:


As of September 30, 2014	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance (in thousands)		#		Balance (in thousands)
Forbearance of Interest		2	$	67		—	$	—
Rate Reduction Only		2		361		1		26
Rate Reduction, Forbearance of Interest		2		155		1		221

Total		6	$	583		2	$	247

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


As of September 30, 2014	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance (in thousands)		#		Balance (in thousands)
1-4 Family Residential		5	$	580		2	$	247
Automobile/Equipment/Inventory		1		3		—		—

Total		6	$	583		2	$	247

As of September 30, 2014, December 31, 2013 and September 30, 2013, the Company had a balance of $25.0 million, $9.1 million and $28.4 million, respectively, in troubled debt restructurings included in covered loans. The following table presents the amount of troubled debt restructurings by loan class of covered loans, classified separately as accrual and non-accrual at September 30, 2014, December 31, 2013 and September 30, 2013:


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

Total		114	$	22,757		23	$	2,249


As of December 31, 2013	Accruing Loans				Non-Accruing Loans
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Commercial, financial & agricultural		—	$	—		2	$	67
Real estate – construction & development		—		—		1		16
Real estate – commercial & farmland		4		579		1		134
Real estate – residential		72		7,830		6		464
Consumer installment		—		—		1		5

Total		76	$	8,409		11	$	686


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

Total		96	$	20,981		26	$	7,414

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


As of September 30, 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		2	$	29		—	$	—
Real estate – construction & development		4		3,050		2		29
Real estate – commercial & farmland		18		9,279		3		447
Real estate – residential		86		10,168		21		2,000
Consumer installment		1		4		—		—

Total		111	$	22,530		26	$	2,476


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	$	27		1	$	40
Real estate – construction & development		1		16		—		—
Real estate – commercial & farmland		5		713		—		—
Real estate – residential		58		5,830		20		2,463
Consumer installment		1		6		—		—

Total		66	$	6,592		21	$	2,503


As of September 30, 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		2	$	12		2	$	40
Real estate – construction & development		7		4,331		2		667
Real estate – commercial & farmland		14		6,419		4		4,586
Real estate – residential		72		10,042		18		2,293
Consumer installment		1		5		—		—

Total		96	$	20,809		26	$	7,586

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


As of September 30, 2014	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance (in thousands)		#		Balance (in thousands)
Forbearance of Interest		2	$	1,548		4	$	116
Forbearance of Principal		—		—		8		228
Rate Reduction Only		97		17,404		5		760
Rate Reduction, Forbearance of Interest		6		490		4		241
Rate Reduction, Forbearance of Principal		9		3,315		1		89
Rate Reduction, payment modification		—		—		1		815

Total		114	$	22,757		23	$	2,249


As of December 31, 2013	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance (in thousands)		#		Balance (in thousands)
Rate Reduction Only		68	$	7,510		6	$	457
Rate Reduction, Forbearance of Interest		3		88		4		96
Rate Reduction, Forbearance of Principal		5		811		1		133

Total		76	$	8,409		11	$	686


As of September 30, 2013	Accruing Loans				Non-Accruing Loans
Type of Concession:	#		Balance (in thousands)		#		Balance (in thousands)
Forbearance of Interest		1	$	24		6	$	1,189
Rate Reduction Only		84		17,409		10		1,463
Rate Reduction, Forbearance of Interest		3		89		6		1,299
Rate Reduction, Forbearance of Principal		7		2,605		4		3,463
Rate reduction, payment modification		1		854		—		—

Total		96	$	20,981		26	$	7,414


As of September 30, 2014	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance (in thousands)		#		Balance (in thousands)
Warehouse		2	$	1,548		2	$	309
Raw Land		1		376		3		63
Hotel & Motel		6		4,635		—		—
Office		1		480		2		883
Retail, including Strip Centers		7		4,332		1		10
1-4 Family Residential		96		11,361		14		981
Automobile/Equipment/Inventory		—		—		1		3
Unsecured		1		25		—		—

Total		114	$	22,757		23	$	2,249


As of December 31, 2013	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance (in thousands)		#		Balance (in thousands)
Raw Land		—	$	—		1	$	16
Hotel & Motel		1		172		—		—
Retail, including Strip Centers		2		283		1		134
1-4 Family Residential		73		7,954		7		469
Automobile/Equipment/Inventory		—		—		2		67

Total		76	$	8,409		11	$	686


As of September 30, 2013	Accruing Loans				Non-Accruing Loans
Collateral type:	#		Balance (in thousands)		#		Balance (in thousands)
Warehouse		—	$	—		1	$	377
Raw Land		1		357		2		672
Hotel & Motel		6		5,104		1		159
Office		1		855		1		82
Retail, including Strip Centers		6		3,882		3		4,147
1-4 Family Residential		81		10,771		15		1,937
Automobile/Equipment/Inventory		—		—		3		40
Unsecured		1		12		—		—

Total		96	$	20,981		26	$	7,414

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

As of September 30, 2014, the Company exhibited a concentration in the CRE loan category based on Federal Reserve Call codes. The primary risks of CRE lending are:

(1)

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

(2)

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

(3)

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

The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of September 30, 2014 and December 31, 2013. The loan categories and concentrations below are based on Federal Reserve Call codes and include purchased on-covered and covered loans:


(Dollars in Thousands)	September 30, 2014					December 31, 2013
	Balance		% of Total Loans			Balance		% of Total Loans
Construction and development loans	$	242,333		9	%	$	220,726		9	%
Multi-family loans		70,868		3	%		67,607		3	%
Nonfarm non-residential loans		1,288,648		45	%		1,145,065		46	%

Total CRE Loans		1,601,849		57	%		1,433,398		58	%
All other loan types		1,234,223		43	%		1,024,046		42	%

Total Loans	$	2,836,072		100	%	$	2,457,444		100	%

The following table outlines the percentage of total CRE loans, net owner occupied loans to total risk-based capital, and the Company’s internal concentration limits as of September 30, 2014 and December 31, 2013:


	Internal Limit			September 30, 2014			December 31, 2013
	Internal Limit			Actual			Actual
Construction and development		100	%		69	%		70	%
Commercial real estate		300	%		236	%		232	%

Short-Term Investments

The Company’s short-term investments are comprised of federal funds sold and interest-bearing balances. At September 30, 2014, the Company’s short-term investments were $40.2 million, compared to $205.0 million and $73.9 million at December 31, 2013 and September 30, 2013, respectively. The decrease in short-term investments during the first nine months of 2014 is mostly due to the Company’s repayment of other borrowings that were recorded in the Prosperity acquisition. At September 30, 2014, $39.7 million 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 that matures September 15, 2020 with a notional amount of $37.1 million at September 30, 2014, December 31, 2013 and September 30, 2013 for the purpose of converting the variable rate on the junior subordinated debentures to a fixed rate of 4.11%. The fair value of these instruments amounted to a liability of approximately $807,000, $370,000 and $972,000 at September 30, 2014, December 31, 2013 and September 30, 2013, respectively. The Company also had forward contracts and IRLCs to hedge changes in the value of the mortgage inventory due to changes in market interest rates. The fair value of these instruments amounted to an asset with a fair value of approximately $2.3 million, $1.2 million and $2.5 million at September 30, 2014, December 31, 2013 and September 30, 2013, respectively. No material hedge ineffectiveness from cash flow hedges was recognized in the statement of earnings. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

Capital

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

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

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%.

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%.

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 September 30, 2014, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. On July 2, 2013, the FRB adopted a new regulatory capital framework as a part of the Basel III regulatory capital reforms. Management currently believes that Ameris will be in compliance with the revised capital requirements when they become applicable to the Company on January 1, 2015. The following table sets forth the regulatory capital ratios of Ameris at September 30, 2014, December 31, 2013 and September 30, 2013:


	September 30,			December 31,			September 30,
	2014			2013			2013
Leverage Ratio (tier 1 capital to average assets)
Consolidated		8.83	%		11.33	%		11.73	%
Ameris Bank		9.67			11.93			11.65
Core Capital Ratio (tier 1 capital to risk weighted assets)
Consolidated		12.47			14.35			18.25
Ameris Bank		13.66			15.06			18.13
Total Capital Ratio (total capital to risk weighted assets)
Consolidated		13.27			15.32			19.50
Ameris Bank		14.46			16.03			19.38

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 the Company to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term investments at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks, which could provide funds on short notice, if needed. The Company has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is equal to 20% of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At September 30, 2014, December 31, 2013 and September 30, 2013, there were $147.4 million, $194.6 million and $5.0 million, respectively, outstanding borrowings with the Company’s correspondent banks.

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


	September 30, 2014			June 30, 2014			March 31, 2014			December 31, 2013			September 30, 2013
Investment securities available for sale to total deposits		15.70	%		15.80	%		15.17	%		16.21	%		12.78	%
Loans (net of unearned income) to total deposits		84.08	%		82.72	%		83.22	%		81.94	%		82.14	%
Interest-earning assets to total assets		87.91	%		87.22	%		87.80	%		87.68	%		87.38	%
Interest-bearing deposits to total deposits		75.79	%		76.67	%		76.79	%		77.71	%		80.54	%

The liquidity resources of the Company are monitored continuously by the ALCO Committee and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s and the Bank’s liquidity ratios at September 30, 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 part of the Company’s program to manage interest rate sensitivity. At September 30, 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 $2.3 million at September 30, 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 and shock 200 basis point increase or decrease in market rates on net interest income and is monitored on a quarterly basis.

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

Item 4. Controls and Procedures.

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

During the quarter ended September 30, 2014, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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 I of 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.

EXHIBIT INDEX


Exhibit No.		Description

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

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

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

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

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

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

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

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

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

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

10.1		First Amendment to Loan Agreement dated as of September 26, 2014 by and between Ameris Bancorp and NexBank SSB (incorporated by reference to Exhibit 10.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on September 29, 2014).

10.2		Amended and Restated Revolving Promissory Note dated as of September 26, 2014 issued by Ameris Bancorp to NexBank SSB (incorporated by reference to Exhibit 10.2 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on September 29, 2014).

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

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

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

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

101		The following financial statements from Ameris Bancorp’s Form 10-Q for the quarter ended September 30, 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.