10-Q 1 d419066d10q.htm FORM 10-Q FORM 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2012

OR

 

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

Commission File Number: 001-13901

 

 

 

LOGO

AMERIS BANCORP

(Exact name of registrant as specified in its charter)

 

 

 

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

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

(Address of principal executive offices)

(229) 890-1111

(Registrant’s telephone number)

 

 

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

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

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

 

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

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

There were 23,819,144 shares of Common Stock outstanding as of October 31, 2012.

 

 

 


Table of Contents

AMERIS BANCORP

TABLE OF CONTENTS

 

     Page  

PART I – FINANCIAL INFORMATION

  

Item 1.

  Financial Statements.   
  Consolidated Balance Sheets at September 30, 2012, December 31, 2011 and September 30, 2011      1   
 

Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Month Periods Ended September 30, 2012 and 2011

     2   
 

Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2012 and 2011

     3   
  Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011      4   
  Notes to Consolidated Financial Statements      5   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations.      33   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk.      45   

Item 4.

  Controls and Procedures.      45   

PART II – OTHER INFORMATION

  

Item 1.

  Legal Proceedings.      46   

Item 1A.

  Risk Factors.      46   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds.      46   

Item 3.

  Defaults Upon Senior Securities.      46   

Item 4.

  Mine Safety Disclosures.      46   

Item 5.

  Other Information.      46   

Item 6.

  Exhibits.      47   

Signatures

     47   


Table of Contents

Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

 

     September 30,
2012
    December 31,
2011
    September 30,
2011
 
     (Unaudited)     (Audited)     (Unaudited)  

Assets

      

Cash and due from banks

   $ 57,289      $ 65,528      $ 55,761   

Federal funds sold and interest bearing accounts

     66,872        229,042        170,349   

Investment securities available for sale, at fair value

     361,051        339,967        340,839   

Other investments

     7,003        9,878        11,089   

Mortgage loans held for sale

     29,021        11,563        8,867   

Loans

     1,439,862        1,332,086        1,368,895   

Covered loans

     546,234        571,489        595,428   

Less: allowance for loan losses

     25,901        35,156        35,238   
  

 

 

   

 

 

   

 

 

 

Loans, net

     1,960,195        1,868,419        1,929,085   
  

 

 

   

 

 

   

 

 

 

Foreclosed assets

     37,325        46,680        50,866   

Covered foreclosed assets

     88,895        78,617        81,907   
  

 

 

   

 

 

   

 

 

 

Total foreclosed assets

     126,220        125,297        132,773   
  

 

 

   

 

 

   

 

 

 

FDIC indemnification asset

     198,440        242,394        239,719   

Premises and equipment, net

     75,609        73,124        71,848   

Cash value of bank owned life insurance

     50,087        —          —     

Intangible assets, net

     3,404        3,250        3,471   

Goodwill

     956        956        956   

Other assets

     13,236        24,889        45,622   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 2,949,383      $ 2,994,307      $ 3,010,379   
  

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

      

Liabilities

      

Deposits:

      

Noninterest-bearing

   $ 464,503      $ 395,347      $ 354,434   

Interest-bearing

     2,115,614        2,196,219        2,274,458   
  

 

 

   

 

 

   

 

 

 

Total deposits

     2,580,117        2,591,566        2,628,892   

Securities sold under agreements to repurchase

     17,404        37,665        13,180   

Other borrowings

     —          20,000        21,000   

Other liabilities

     10,387        9,037        10,616   

Subordinated deferrable interest debentures

     42,269        42,269        42,269   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     2,650,177        2,700,537        2,715,957   
  

 

 

   

 

 

   

 

 

 

Commitments and contingencies

      

Stockholders’ Equity

      

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

     51,207        50,727        50,572   

Common stock, par value $1; 100,000,000 shares authorized; 25,155,318, 25,087,468 and 25,078,968 issued

     25,155        25,087        25,079   

Capital surplus

     164,182        166,639        166,385   

Retained earnings

     62,156        54,852        54,530   

Accumulated other comprehensive income

     7,337        7,296        8,687   

Treasury stock, at cost, 1,336,174 shares

     (10,831     (10,831     (10,831
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     299,206        293,770        294,422   
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,949,383      $ 2,994,307      $ 3,010,379   
  

 

 

   

 

 

   

 

 

 

See notes to unaudited consolidated financial statements.

 

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Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Dollars in Thousands, Except Per Share Data)

(Unaudited)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Interest income

        

Interest and fees on loans

   $ 29,165      $ 31,633      $ 88,981      $ 93,480   

Interest on taxable securities

     2,017        2,672        6,513        7,904   

Interest on nontaxable securities

     365        330        1,104        964   

Interest on deposits in other banks and federal funds sold

     104        153        342        500   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     31,651        34,788        96,940        102,848   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

        

Interest on deposits

     3,005        6,431        10,724        20,631   

Interest on other borrowings

     408        555        1,370        1,461   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     3,413        6,986        12,094        22,092   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     28,238        27,802        84,846        80,756   

Provision for loan losses

     6,540        7,552        26,647        23,710   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision for loan losses

     21,698        20,250        58,199        57,046   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest income

        

Service charges on deposit accounts

     5,121        4,666        14,277        13,598   

Mortgage banking activity

     3,740        707        8,221        1,533   

Other service charges, commissions and fees

     331        392        1,044        907   

Gain on acquisitions

     —          26,867        20,037        26,867   

Gain on sale of securities

     —          —          —          238   

Other noninterest income

     639        1,090        2,391        2,746   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest income

     9,831        33,722        45,970        45,889   
  

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest expense

        

Salaries and employee benefits

     13,766        10,029        37,337        29,293   

Equipment and occupancy expenses

     3,340        3,203        9,555        8,685   

Amortization of intangible assets

     364        277        996        782   

Data processing and telecommunications expenses

     2,599        2,817        7,429        7,665   

Advertising and marketing expenses

     421        189        1,134        501   

Other non-interest expenses

     8,320        12,748        33,228        26,088   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total noninterest expense

     28,810        29,263        89,679        73,014   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

     2,719        24,709        14,490        29,921   

Applicable income tax expense

     816        8,249        4,727        9,969   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 1,903      $ 16,460      $ 9,763      $ 19,952   
  

 

 

   

 

 

   

 

 

   

 

 

 

Preferred stock dividends

     827        817        2,459        2,422   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common shareholders

   $ 1,076      $ 15,643      $ 7,304      $ 17,530   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

        

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

     (228     2,803        1,017        4,791   

Reclassification adjustment for gains included in earnings, net of tax

     —          —          —          (154

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

     (240     (1,526     (976     (2,154
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     (468     1,277        41        2,483   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 608      $ 16,920      $ 7,345      $ 20,013   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share

   $ 0.05      $ 0.67      $ 0.31      $ 0.75   

Diluted earnings per share

   $ 0.04      $ 0.66      $ 0.30      $ 0.74   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Common Shares Outstanding

        

Basic

     23,819        23,438        23,800        23,439   

Diluted

     23,973        23,559        23,954        23,530   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited consolidated financial statements.

 

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AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in Thousands, Except Per Share Data)

(Unaudited)

 

     Nine Months Ended     Nine Months Ended  
     September 30, 2012     September 30, 2011  
     Shares      Amount     Shares     Amount  

PREFERRED STOCK

         

Balance at beginning of period

     52,000       $ 50,727        52,000      $ 50,121   

Accretion of fair value of warrant

     —           480        —          451   
  

 

 

    

 

 

   

 

 

   

 

 

 

Issued at end of period

     52,000       $ 51,207        52,000      $ 50,572   

COMMON STOCK

         

Issued at beginning of period

     25,087,468       $ 25,087        24,982,911      $ 24,983   

Issuance of restricted shares

     67,450         67        125,075        125   

Cancellation of restricted shares

     —           —          (32,650     (33

Proceeds from exercise of stock options

     400         1        3,632        4   
  

 

 

    

 

 

   

 

 

   

 

 

 

Issued at end of period

     25,155,318       $ 25,155        25,078,968      $ 25,079   

CAPITAL SURPLUS

         

Balance at beginning of period

      $ 166,639        $ 165,930   

Repurchase of warrants

        (2,670       —     

Stock-based compensation

        278          522   

Proceeds from exercise of stock options

        2          25   

Issuance of restricted shares

        (67       (125

Cancellation of restricted shares

        —            33   
     

 

 

     

 

 

 

Balance at end of period

      $ 164,182        $ 166,385   

RETAINED EARNINGS

         

Balance at beginning of period

      $ 54,852        $ 37,000   

Net income

        9,763          19,952   

Dividends on preferred shares

        (1,979       (1,971

Accretion of fair value of warrant

        (480       (451
     

 

 

     

 

 

 

Balance at end of period

      $ 62,156        $ 54,530   

ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX

         

Unrealized gains on securities and derivatives:

         

Balance at beginning of period

      $ 7,296        $ 6,204   

Other comprehensive income

        41          2,483   
     

 

 

     

 

 

 

Balance at end of period

      $ 7,337        $ 8,687   

TREASURY STOCK

         

Balance at beginning of period

      $ 10,831        $ 10,831   

Purchase of treasury shares

        —            —     
     

 

 

     

 

 

 

Balance at end of period

      $ 10,831        $ 10,831   

TOTAL STOCKHOLDERS’ EQUITY

      $ 299,206        $ 294,422   

See notes to unaudited consolidated financial statements.

 

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Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

 

     Nine Months Ended
September 30,
 
     2012     2011  

Cash Flows From Operating Activities:

    

Net income

   $ 9,763      $ 19,952   

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

    

Depreciation

     3,585        3,248   

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

     163        (148

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

     9,048        9,962   

Provision for loan losses

     26,647        23,710   

Gain on acquisitions

     (20,037     (26,867

Amortization of intangible assets

     996        782   

Net change in mortgage loans held for sale

     (17,458     (8,867

Net gains on securities available for sale

     —          (238

Change in other prepaids, deferrals and accruals, net

     16,236        14,104   
  

 

 

   

 

 

 

Net cash provided by operating activities

     28,943        35,638   
  

 

 

   

 

 

 

Cash Flows From Investing Activities, net of effect of business combinations:

    

Net decrease in federal funds sold and interest bearing deposits

     162,170        95,983   

Proceeds from maturities of securities available for sale

     82,623        59,655   

Purchase of securities available for sale

     (89,787     (116,228

Proceeds from sales of securities available for sale

     27,563        89,345   

Purchase bank owned life insurance

     (50,000     —     

Net (increase) decrease in loans

     (53,660     49,071   

Proceeds from sales of other real estate owned

     57,443        36,885   

Proceeds from sales of premises and equipment

     409        1,115   

Purchases of premises and equipment

     (6,642     (9,573

Decrease in FDIC indemnification asset

     96,608        20,519   

Net cash proceeds received from FDIC-assisted acquisitions

     220,516        38,017   
  

 

 

   

 

 

 

Net cash provided by investing activities

     447,243        264,789   
  

 

 

   

 

 

 

Cash Flows From Financing Activities, net of effect of business combinations:

    

Net decrease in deposits

     (429,185     (218,522

Net decrease in securities sold under agreements to repurchase

     (20,261     (55,004

Decrease in other borrowings

     (30,334     (43,495

Dividends paid—preferred stock

     (1,979     (1,971

Repurchase of warrants

     (2,670     —     

Proceeds from exercise of stock options

     4        —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (484,425     (318,992
  

 

 

   

 

 

 

Net decrease in cash and due from banks

   $ (8,239   $ (18,565

Cash and due from banks at beginning of period

     65,528        74,326   
  

 

 

   

 

 

 

Cash and due from banks at end of period

   $ 57,289      $ 55,761   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Cash paid during the period for:

    

Interest

   $ 13,699      $ 23,456   

Income taxes

   $ 52      $ 2,198   

See notes to unaudited consolidated financial statements.

 

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Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(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, 2012, the Bank operated 66 branches in select markets in Georgia, Alabama, Florida and South Carolina. Our business model capitalizes on the efficiencies of a large financial services company while still providing the community with the personalized banking service expected by our customers. We manage our Bank through a balance of decentralized management responsibilities and efficient centralized operating systems, products and loan underwriting standards. Ameris’ Board of Directors and senior managers establish corporate policy, strategy and administrative policies. Within Ameris’ established guidelines and policies, the banker closest to the customer responds to the differing needs and demands of his or her unique market.

The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. The interim consolidated financial statements included herein are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the period ended September 30, 2012 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, 2011.

Newly Adopted Accounting Pronouncements

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

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

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

Fair Value of Financial Instruments

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

 

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

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

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

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

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

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

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

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

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

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

Loans: The carrying amount of variable-rate loans that reprice frequently and have no significant change in credit risk approximates fair value. The fair value of fixed-rate loans is estimated based on discounted contractual cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The fair value of impaired loans is estimated based on discounted 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 2 assets due to the extensive use of market appraisals. To the extent that market appraisals or other methods do not produce reliable determinations of fair value, these assets are deemed to be Level 3.

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

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

 

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Table of Contents

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

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

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

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

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

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

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

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

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself or the counterparty. However, as of September 30, 2012, December 31, 2011 and September 30, 2011, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.

 

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Table of Contents

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

 

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

Financial assets:

              

Loans, net

   $ 1,960,195       $ —         $ 1,989,786       $ —         $ 1,989,786   

Financial liabilities:

              

Deposits

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

Other borrowings

     —           —           —           —           —     

 

     December 31, 2011      September 30, 2011  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 
     (Dollars in Thousands)  

Financial assets:

           

Loans, net

   $ 1,868,419       $ 1,877,320       $ 1,929,085       $ 1,907,017   

Financial liabilities:

           

Deposits

     2,591,566         2,593,113         2,628,892         2,629,974   

Other borrowings

     20,000         20,936         21,000         20,814   

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, 2012 and 2011 and December 31, 2011 (dollars in thousands):

 

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

U.S. government agencies

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

State, county and municipal securities

     111,742        6,932         104,810        —     

Corporate debt securities

     11,495        —           9,495        2,000   

Mortgage backed securities

     228,919        1,965         226,954        —     

Mortgage loans held for sale

     29,021        —           29,021        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total recurring assets at fair value

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

 

 

   

 

 

    

 

 

   

 

 

 

Derivative financial instruments

   $ 3,233      $ —         $ 3,233        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total recurring liabilities at fair value

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

 

 

   

 

 

    

 

 

   

 

 

 
     Fair Value Measurements on a Recurring Basis
As of December 31, 2011
 
     Fair Value     Level 1      Level 2     Level 3  

U.S. government agencies

   $ 14,937      $ —         $ 14,937      $ —     

State, county and municipal securities

     79,133        2,966         76,167        —     

Corporate debt securities

     11,401        —           9,401        2,000   

Mortgage backed securities

     234,496        3,302         231,194        —     

Derivative financial instruments

     (2,049     —           (2,049     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total recurring assets at fair value

   $ 337,918      $ 6,268       $ 329,650      $ 2,000   
  

 

 

   

 

 

    

 

 

   

 

 

 
     Fair Value Measurements on a Recurring Basis
As of September 30, 2011
 
     Fair Value     Level 1      Level 2     Level 3  

U.S. government agencies

   $ 20,309      $ —         $ 20,309      $ —     

State, county and municipal securities

     71,682        6,552         65,130        —     

Corporate debt securities

     11,528        —           9,528        2,000   

Mortgage backed securities

     237,320        6,044         231,276        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total recurring assets at fair value

   $ 340,839      $ 12,596       $ 326,243      $ 2,000   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

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, 2012 and 2011 and December 31, 2011 (dollars in thousands):

 

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

Impaired loans carried at fair value

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

Other real estate owned

     37,325         —           —           37,325   

Covered loans

     546,234         —           —           546,234   

Covered other real estate owned

     88,895         —           —           88,895   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-recurring assets at fair value

   $ 722,891       $ —         $ 50,437       $ 672,454   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value Measurements on a Nonrecurring Basis
As of December 31, 2011
 
     Fair Value      Level 1      Level 2      Level 3  

Impaired loans carried at fair value

   $ 70,296       $ —         $ 70,296       $ —     

Other real estate owned

     46,680         —           —           46,680   

Covered loans

     571,489         —           —           571,489   

Covered other real estate owned

     78,617         —           —           78,617   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring assets at fair value

   $ 767,082       $ —         $ 70,296       $ 696,786   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value Measurements on a Nonrecurring Basis
As of September 30, 2011
 
     Fair Value      Level 1      Level 2      Level 3  

Impaired loans carried at fair value

   $ 58,648       $ —         $ 58,648       $ —     

Other real estate owned

     50,866         —           —           50,866   

Covered loans

     595,428         —           —           595,428   

Covered other real estate owned

     81,907         —           —           81,907   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring assets at fair value

   $ 786,849       $ —         $ 58,648       $ 728,201   
  

 

 

    

 

 

    

 

 

    

 

 

 

Below is the Company’s reconciliation of Level 3 assets as of September 30, 2012 (dollars in thousands):

 

     Investment
Securities
Available
for Sale
     Other Real
Estate
Owned
    Covered
Loans
    Covered
Other Real
Estate
 

Beginning balance January 1, 2012

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

Total gains/(losses) included in net income

     —           (9,048     —          —     

Purchases, sales, issuances, and settlements, net

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

Transfers in or out of Level 3

     —           20,701        (40,536     40,536   
  

 

 

    

 

 

   

 

 

   

 

 

 

Ending balance September 30, 2012

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

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

NOTE 2 – INVESTMENT SECURITIES

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

The amortized cost and estimated fair value of investment securities available for sale at September 30, 2012, December 31, 2011 and September 30, 2011 are presented below:

 

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

September 30, 2012:

          

U. S. government agencies

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

State, county and municipal securities

     106,541         5,345         (144     111,742   

Corporate debt securities

     11,793         262         (560     11,495   

Mortgage-backed securities

     222,641         6,562         (284     228,919   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities

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

 

 

    

 

 

    

 

 

   

 

 

 

December 31, 2011:

          

U. S. government agencies

   $ 14,670       $ 267       $ —        $ 14,937   

State, county and municipal securities

     75,665         3,558         (90     79,133   

Corporate debt securities

     11,640         167         (406     11,401   

Mortgage-backed securities

     228,085         6,559         (148     234,496   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities

   $ 330,060       $ 10,551       $ (644   $ 339,967   
  

 

 

    

 

 

    

 

 

   

 

 

 

September 30, 2011:

          

U. S. government agencies

   $ 20,007       $ 302       $ —        $ 20,309   

State, county and municipal securities

     68,486         3,196         —          71,682   

Corporate debt securities

     11,638         247         (357     11,528   

Mortgage-backed securities

     230,786         6,838         (304     237,320   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total securities

   $ 330,917       $ 10,583       $ (661   $ 340,839   
  

 

 

    

 

 

    

 

 

   

 

 

 

The amortized cost and fair value of available-for-sale securities at September 30, 2012 by contractual maturity are summarized in the table below. Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers can prepay obligations without prepayment penalties. Therefore, these securities are not included in the following maturity summary:

 

     Amortized
Cost
     Fair
Value
 
     (Dollars in Thousands)  

Due in one year or less

   $ 9,385       $ 9,428   

Due from one year to five years

     18,605         19,420   

Due from five to ten years

     57,227         61,179   

Due after ten years

     41,723         42,105   

Mortgage-backed securities

     222,641         228,919   
  

 

 

    

 

 

 
   $ 349,581       $ 361,051   
  

 

 

    

 

 

 

Securities with a carrying value of approximately $171.7 million serve as collateral to secure public deposits and other purposes required or permitted by law at September 30, 2012.

 

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Table of Contents

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, 2012, December 31, 2011 and September 30, 2011.

 

     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, 2012:

               

U. S. government agencies

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

State, county and municipal securities

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

Corporate debt securities

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

Mortgage-backed securities

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

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

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

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

December 31, 2011:

               

U. S. government agencies

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

State, county and municipal securities

     10,134         (90     —           —          10,134         (90

Corporate debt securities

     100         —          6,681         (406     6,781         (406

Mortgage-backed securities

     20,929         (148     —           —          20,929         (148
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 31,163       $ (238   $ 6,681       $ (406   $ 37,844       $ (644
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

September 30, 2011:

               

U. S. government agencies

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

State, county and municipal securities

     —           —          —           —          —           —     

Corporate debt securities

     100         —          6,732         (357     6,832         (357

Mortgage-backed securities

     33,741         (304     —           —          33,741         (304
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total temporarily impaired securities

   $ 33,841       $ (304   $ 6,732       $ (357   $ 40,573       $ (661
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

NOTE 3 – LOANS

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

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

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

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

 

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Table of Contents

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

 

(Dollars in Thousands)

   September 30,
2012
     December 31,
2011
     September 30,
2011
 

Commercial, financial and agricultural

   $ 189,374       $ 142,960       $ 159,020   

Real estate – construction and development

     125,315         130,270         145,770   

Real estate – commercial and farmland

     713,240         672,765         677,048   

Real estate – residential

     343,332         330,727         331,236   

Consumer installment

     43,441         37,296         38,163   

Other

     25,160         18,068         17,658   
  

 

 

    

 

 

    

 

 

 
   $ 1,439,862       $ 1,332,086       $ 1,368,895   
  

 

 

    

 

 

    

 

 

 

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 $546.2 million, $571.5 million and $595.4 million at September 30, 2012, December 31, 2011 and September 30, 2011, 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,
2012
     December 31,
2011
     September 30,
2011
 

Commercial, financial and agricultural

   $ 37,167       $ 41,867       $ 49,859   

Real estate – construction and development

     73,356         77,077         82,933   

Real estate – commercial and farmland

     298,903         321,257         323,760   

Real estate – residential

     135,154         127,644         135,318   

Consumer installment

     1,654         3,644         3,558   
  

 

 

    

 

 

    

 

 

 
   $ 546,234       $ 571,489       $ 595,428   
  

 

 

    

 

 

    

 

 

 

Nonaccrual and Past Due Loans

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

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

 

(Dollars in Thousands)

   September 30,
2012
     December 31,
2011
     September 30,
2011
 

Commercial, financial and agricultural

   $ 4,285       $ 3,987       $ 4,570   

Real estate – construction and development

     8,201         15,020         15,789   

Real estate – commercial and farmland

     11,408         35,385         24,450   

Real estate – residential

     13,236         15,498         13,529   

Consumer installment

     1,095         933         729   
  

 

 

    

 

 

    

 

 

 
   $ 38,225       $ 70,823       $ 59,067   
  

 

 

    

 

 

    

 

 

 

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

 

(Dollars in Thousands)

   September 30,
2012
     December 31,
2011
     September 30,
2011
 

Commercial, financial and agricultural

   $ 11,938       $ 11,952       $ 12,136   

Real estate – construction and development

     21,971         30,977         32,878   

Real estate – commercial and farmland

     58,377         75,458         63,940   

Real estate – residential

     31,189         41,139         34,846   

Consumer installment

     426         473         451   
  

 

 

    

 

 

    

 

 

 
   $ 123,901       $ 159,999       $ 144,251   
  

 

 

    

 

 

    

 

 

 

 

12


Table of Contents

The following table presents an analysis of non-covered past due loans as of September 30, 2012, December 31, 2011 and September 30, 2011.

 

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

As of September 30, 2012:

                    

Commercial, financial & agricultural

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

Real estate – construction & development

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

Real estate – commercial & farmland

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

Real estate – residential

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

Consumer installment loans

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

Other

     —           —           —           —           25,160         25,160         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

As of December 30, 2011:

                    

Commercial, financial & agricultural

   $ 1,103       $ 705       $ 3,975       $ 5,783       $ 137,177       $ 142,960       $ —     

Real estate – construction & development

     2,395         1,507         13,608         17,510         112,760         130,270         —     

Real estate – commercial & farmland

     6,686         7,071         32,953         46,710         626,055         672,765         —     

Real estate – residential

     5,229         4,995         12,874         23,098         307,629         330,727         —     

Consumer installment loans

     963         305         725         1,993         35,303         37,296         —     

Other

     —           —           —           —           18,068         18,068         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 16,376       $ 14,583       $ 64,135       $ 95,094       $ 1,236,992       $ 1,332,086       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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, 2011:

                    

Commercial, financial & agricultural

   $ 657       $ 884       $ 4,544       $ 6,085       $ 152,935       $ 159,020       $ —     

Real estate – construction & development

     1,228         1,759         15,050         18,037         127,733         145,770         —     

Real estate – commercial & farmland

     6,755         2,594         22,777         32,126         644,922         677,048         —     

Real estate – residential

     5,581         2,476         12,706         20,763         310,473         331,236         —     

Consumer installment loans

     475         260         661         1,396         36,767         38,163         20  

Other

     —           —           —           —           17,658         17,658         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 14,696       $ 7,973       $ 55,738       $ 78,407       $ 1,290,488       $ 1,368,895       $ 20  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents

The following table presents an analysis of covered past due loans as of September 30, 2012, December 31, 2011 and September 30, 2011.

 

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

As of September 30, 2012:

                    

Commercial, financial & agricultural

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

Real estate – construction & development

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

Real estate – commercial & farmland

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

Real estate – residential

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

Consumer installment loans

     56         92         255         403         1,251         1,654         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

As of December 30, 2011:

                    

Commercial, financial & agricultural

   $ 968       $ 4,297       $ 11,253       $ 16,518       $ 25,349       $ 41,867       $ —     

Real estate – construction & development

     2,444         1,318         27,867         31,629         45,448         77,077         —     

Real estate – commercial & farmland

     18,282         8,544         64,091         90,917         230,340         321,257         165   

Real estate – residential

     3,485         1,493         35,950         40,928         86,716         127,644         290   

Consumer installment loans

     127         270         440         837         2,807         3,644         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 25,306       $ 15,922       $ 139,601       $ 180,829       $ 390,660       $ 571,489       $ 455   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     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, 2011:

                    

Commercial, financial & agricultural

   $ 290       $ 411       $ 11,406       $ 12,107       $ 37,752       $ 49,859       $ 5  

Real estate – construction & development

     1,175         2,610         30,220         34,005         48,928         82,933         347  

Real estate – commercial & farmland

     16,316         7,790         54,009         78,115         245,645         323,760         339  

Real estate – residential

     8,180         2,717         32,570         43,467         91,851         135,318         2,039  

Consumer installment loans

     72         73         422         567         2,991         3,558         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 26,033       $ 13,601       $ 128,627       $ 168,261       $ 427,167       $ 595,428       $ 2,730  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

14


Table of Contents

Impaired Loans

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

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

 

     As of and For the Period Ended  
     September 30,
2012
     December 31,
2011
     September 30,
2011
 
     (Dollars in Thousands)  

Nonaccrual loans

   $ 38,225       $ 70,823       $ 59,067   

Troubled debt restructurings not included above

     19,893         17,951         16,591   
  

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 58,118       $ 88,774       $ 75,658   
  

 

 

    

 

 

    

 

 

 

Impaired loans not requiring a related allowance

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Impaired loans requiring a related allowance

   $ 58,118       $ 88,774       $ 75,658   
  

 

 

    

 

 

    

 

 

 

Allowance related to impaired loans

   $ 7,681       $ 18,478       $ 17,010   
  

 

 

    

 

 

    

 

 

 

Average investment in impaired loans

   $ 73,353       $ 88,320       $ 88,207   
  

 

 

    

 

 

    

 

 

 

Interest income recognized on impaired loans

   $ 376       $ 637       $ 847   
  

 

 

    

 

 

    

 

 

 

Foregone interest income on impaired loans

   $ 491       $ 613       $ 202   
  

 

 

    

 

 

    

 

 

 

The following table presents an analysis of information pertaining to non-covered impaired loans as of September 30, 2012, December 31, 2011 and September 30, 2011.

 

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

As of September 30, 2012:

                 

Commercial, financial & agricultural

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

Real estate – construction & development

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

Real estate – commercial & farmland

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

Real estate – residential

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

Consumer installment loans

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

15


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

As of December 31, 2011:

                 

Commercial, financial & agricultural

   $ 9,592       $ —         $ 5,110       $ 5,110       $ 1,366       $ 5,700   

Real estate – construction & development

     21,893         —           15,672         15,672         4,053         18,667   

Real estate – commercial & farmland

     48,688         —           45,006         45,006         8,331         42,192   

Real estate – residential

     25,309         —           22,053         22,053         4,499         21,081   

Consumer installment loans

     1,056         —           933         933         229         680   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 106,538       $ —         $ 88,774       $ 88,774       $ 18,478       $ 88,320   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

As of September 30, 2011:

                 

Commercial, financial & agricultural

   $ 8,895       $ —         $ 4,571       $ 4,571       $ 1,277       $ 5,848   

Real estate – construction & development

     26,450         —           17,486         17,486         6,164         19,417   

Real estate – commercial & farmland

     35,835         —           31,455         31,455         4,470         41,488   

Real estate – residential

     23,871         —           21,436         21,436         4,933         20,837   

Consumer installment loans

     875         —           710         710         166         617   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 95,926       $ —         $ 75,658       $ 75,658       $ 17,010       $ 88,207   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     As of and For the Period Ended  
     September 30,
2012
     December 31,
2011
     September 30,
2011
 
     (Dollars in Thousands)  

Nonaccrual loans

   $ 123,901       $ 159,999       $ 144,251   

Troubled debt restructurings not included above

     25,926         19,884         10,768   
  

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 149,827       $ 179,883       $ 155,019   
  

 

 

    

 

 

    

 

 

 

Impaired loans not requiring a related allowance

   $ 149,827       $ 179,883       $ 155,019   
  

 

 

    

 

 

    

 

 

 

Impaired loans requiring a related allowance

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Allowance related to impaired loans

   $ —         $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Average investment in impaired loans

   $ 171,055       $ 138,950       $ 128,717   
  

 

 

    

 

 

    

 

 

 

Interest income recognized on impaired loans

   $ 1,319       $ 526       $ 462   
  

 

 

    

 

 

    

 

 

 

Foregone interest income on impaired loans

   $ 554       $ 202       $ 1,515   
  

 

 

    

 

 

    

 

 

 

 

16


Table of Contents

The following table presents an analysis of information pertaining to impaired covered loans as of September 30, 2012, December 31, 2011 and September 30, 2011.

 

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

As of September 30, 2012:

                 

Commercial, financial & agricultural

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

Real estate – construction & development

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

Real estate – commercial & farmland

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

Real estate – residential

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

Consumer installment loans

     890         426         —           426         —           548   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

As of December 31, 2011:

                 

Commercial, financial & agricultural

   $ 21,352       $ 12,027       $ —         $ 12,027       $ —         $ 10,210   

Real estate – construction & development

     47,005         34,363         —           34,363         —           30,610   

Real estate – commercial & farmland

     106,953         84,740         —           84,740         —           56,607   

Real estate – residential

     68,411         48,280         —           48,280         —           40,675   

Consumer installment loans

     623         473         —           473         —           848   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 244,344       $ 179,883       $ —         $ 179,883       $ —         $ 138,950   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

As of September 30, 2011:

                 

Commercial, financial & agricultural

   $ 19,904       $ 12,194       $ —         $ 12,194       $ —         $ 9,756   

Real estate – construction & development

     111,148         33,380         —           33,380         —           29,672   

Real estate – commercial & farmland

     135,514         65,592         —           65,592         —           49,573   

Real estate – residential

     72,962         43,402         —           43,402         —           38,775   

Consumer installment loans

     581         451         —           451         —           941   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 340,109       $ 155,019       $ —         $ 155,019       $ —         $ 128,717   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Credit Quality Indicators

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

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

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

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

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

 

17


Table of Contents

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

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

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

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

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

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

 

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents the non-covered loan portfolio by risk grade as of December 31, 2011.

 

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   $ 17,213      $ 20      $ 235      $ 252      $ 6,210      $ —        $ 23,930   
15     15,379        5,391        151,068        88,586        1,065        —          261,489   
20     60,631        32,654        272,241        80,989        20,781        18,068        485,364   
23     32        7,994        10,679        10,997        28        —          29,730   
25     42,815        62,029        163,554        110,786        7,181        —          386,365   
30     2,509        2,027        21,490        15,001        557        —          41,584   
40     4,258        19,864        53,498        23,867        1,460        —          102,947   
50     123        291        —          249        14        —          677   
60     —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total   $ 142,960      $ 130,270      $ 672,765      $ 330,727      $ 37,296      $ 18,068      $ 1,332,086   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


Table of Contents

The following table presents the non-covered loan portfolio by risk grade as of September 30, 2011.

 

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   $ 16,047      $ 211      $ 905      $ 109      $ 6,189      $ —        $ 23,461   
15     12,135        4,814        146,029        29,930        973        —          193,881   
20     67,085        35,764        277,651        130,731        21,859        17,658        550,748   
23     1,192        8,043        9,290        11,985        28        —          30,538   
25     55,307        69,618        169,887        122,939        7,391        —          425,142   
30     1,738        4,291        35,550        10,583        598        —          52,760   
40     5,376        22,753        37,736        24,959        1,033        —          91,857   
50     140        276        —          —          92        —          508   
60     —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total   $ 159,020      $ 145,770      $ 677,048      $ 331,236      $ 38,163      $ 17,658      $ 1,368,895   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table presents the covered loan portfolio by risk grade as of December 31, 2011.

 

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   $ 442      $ —        $ —        $ 1,329      $ 768      $ —        $ 2,539   
15     29        52        1,755        586        14        —          2,436   
20     4,807        5,751        26,211        19,216        687        —          56,672   
23     —          1,177        3,262        1,038        —          —          5,477   
25     15,531        21,142        137,981        43,606        1,308        —          219,568   
30     5,882        10,654        49,642        12,374        172        —          78,724   
40     15,176        38,273        102,406        49,495        695        —          206,045   
50     —          28        —          —          —          —          28   
60     —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total   $ 41,867      $ 77,077      $ 321,257      $ 127,644      $ 3,644      $ —        $ 571,489   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


Table of Contents

The following table presents the covered loan portfolio by risk grade as of September 30, 2011.

 

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   $ 587      $ —        $ —        $ 1,376      $ 578      $ —        $ 2,541   
15     31        53        1,799        633        16        —          2,532   
20     4,602        5,615        31,938        20,911        557        —          63,623   
23     —          54        1,478        690        —          —          2,222   
25     22,142        22,664        141,921        51,260        1,386        —          239,373   
30     5,810        12,831        41,679        8,705        198        —          69,223   
40     16,683        40,571        104,008        51,743        823        —          213,828   
50     4        1,145        937        —          —          —          2,086   
60     —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Total   $ 49,859      $ 82,933      $