Assets Acquired in FDIC-Assisted Acquisitions

6 Months Ended

Jun. 30, 2011

Assets Acquired in FDIC-Assisted Acquisitions

Assets Acquired in FDIC-Assisted Acquisitions

NOTE 4 – ASSETS ACQUIRED IN FDIC-ASSISTED ACQUISITIONS

From October 2009 through June 2011, the Company participated in six FDIC-assisted acquisitions whereby the Company purchased certain failed institutions out of the FDIC's receivership. These institutions include:

Bank Acquired	Location:	Branches:	Date Acquired
American United Bank ("AUB")	Lawrenceville, Ga.	1	October 23, 2009
United Security Bank ("USB")	Sparta, Ga.	2	November 6, 2009
Satilla Community Bank ("SCB")	St. Marys, Ga.	1	May 14, 2010
First Bank of Jacksonville ("FBJ")	Jacksonville, Fl.	2	October 22, 2010
Tifton Banking Company ("TBC")	Tifton, Ga.	1	November 12, 2010
Darby Bank & Trust ("DBT")	Vidalia, Ga.	7	November 12, 2010

The determination of the initial fair value of loans at the acquisition and the initial fair value of the related FDIC indemnification asset involves a high degree of judgment and complexity. The carrying values of the acquired loans and the FDIC indemnification asset 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 these financial statements, 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 asset 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, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loan's remaining life. If the expected cash flows expected to be collected decreases, the Company records a provision for loan loss in its consolidated statement of operations. During the six months ended June 30, 2011 and the year ended December 31, 2010, the Company recorded provision for loan loss expense of $1.9 million and $1.7 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.

On the acquisition date, the preliminary estimates of the contractually required payments receivable for all ASC 310 loans acquired in the acquisitions totaled $505.1 million and the estimated fair values of the loans totaled $273.1 million, net of an accretable yield of $38.8 million, the difference between the value of the loans on the Company's balance sheet and the cash flows they are expected to produce. These amounts were determined based upon the estimated remaining life of the underlying loans, which includes the effects of estimated prepayments

The following table summarizes components of all covered assets at June 30, 2011 and December 31, 2010 and their origin:

	SCB		FBJ		TBC		DBT		AUB		USB		Total
As of June 30, 2011:		(Dollars in thousands)
Covered loans	$	61,958	$	45,011	$	99,529	$	326,991	$	48,309	$	67,203	$	649,001
Less adjustments related to credit risk		6,471		8,500		21,249		112,589		5,208		6,332		160,349
Less adjustments related to liquidity and yield		361		119		397		951		86		249		2,163
Total Covered Loans	$	55,126	$	36,392	$	77,883	$	213,451	$	43,015	$	60,622	$	486,489
OREO	$	9,761	$	3,053	$	6,113	$	36,383	$	11,064	$	10,274	$	76,648
Less fair value adjustments		500		1,559		1,274		9,582		77		73		13,065
Covered OREO	$	9,261	$	1,494	$	4,839	$	26,801	$	10,987	$	10,201	$	63,583
Total covered assets	$	64,387	$	37,886	$	82,722	$	240,252	$	54,002	$	70,823	$	550,072
FDIC loss-share receivable	$	9,669	$	9,812	$	26,070	$	100,150	$	5,338	$	9,888	$	160,927
	SCB		FBJ		TBC		DBT		AUB		USB		Total
As of December 31, 2010:	(Dollars in thousands)
Covered loans	$	76,472	$	48,632	$	113,283	$	380,238	$	53,203	$	77,188	$	749,016
Less adjustments related to credit risk		12,336		10,532		25,388		130,769		4,332		7,593		190,950
Less adjustments related to liquidity and yield		506		151		458		1,199		214		547		3,075
Total Covered Loans	$	63,630	$	37,949	$	87,437	$	248,270	$	48,657	$	69,048	$	554,991
OREO	$	8,311	$	2,799	$	4,178	$	42,724	$	13,207	$	11,473	$	82,692
Less fair value adjustments		1,373		2,500		2,031		21,000		783		74		27,761
Covered OREO	$	6,938	$	299	$	2,147	$	21,724	$	12,424	$	11,399	$	54,931
Total covered assets	$	70,568	$	38,248	$	89,584	$	269,994	$	61,081	$	80,447	$	609,922
FDIC loss-share receivable	$	14,333	$	11,944	$	27,436	$	112,404	$	4,208	$	6,862	$	177,187

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

Total Amounts	June 30, 2011		December 31, 2010		June 30, 2010
	(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 yield)	$	8,448	$	30,448	$	16,987
Adjustments needed where the Company's initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		8,018		8,410		4,417
Amounts reflected in the Company's Statement of Operations	June 30, 2011		December 31, 2010		June 30, 2010
	(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 yield)	$	1,689	$	4,245	$	2,353
Adjustments needed where the Company's initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		1,604		1,682		883

A rollforward of acquired loans with deterioration of credit quality for the six months ended June 30, 2011, the year ended December 31, 2010 and the six months ended June 30, 2010 is shown below:

(Dollars in Thousands)	June 30, 2011			December 31, 2010			June 30, 2010
Balance, January 1	$	252,535		$	56,793		$	56,793
Change in estimate of cash flows, net of charge-offs or recoveries		(6,681	)		(8,081	)		(849	)
Additions due to acquisitions		—			214,500			25,471
Other (loan payments, transfers, etc.)		(2,648	)		(10,677	)		(2,429	)
Ending balance	$	243,206		$	252,535		$	78,986

The following is a summary of changes in the accretable yields of acquired loans during the six months ended June 30, 2011, the year ended December 31, 2010 and the six months ended June 30, 2010.

(Dollars in Thousands)	June 30, 2011			December 31, 2010			June 30, 2010
Balance, January 1	$	37,383		$	3,550		$	3,550
Additions due to acquisitions		—			35,245			1,508
Accretion		(10,073	)		(7,502	)		(2,353	)
Other activity, net		(7,178	)		6,090			3,398
Ending balance	$	20,132		$	37,383		$	6,103

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 value of $168.9 million and $45.8 million on the 2010 and 2009 acquisition dates, respectively. Changes in the FDIC shared-loss receivable for the six months ended June 30, 2011, for the year ended December 31, 2010 and for the six months ended June 30, 2010 are as follows:

(Dollars in Thousands)	June 30, 2011			December 31, 2010			June 30, 2010
Balance, January 1	$	177,187		$	45,840		$	45,840
Indemnification asset recorded in acquisitions		—			168,918			22,400
Payments received from FDIC		(5,162	)		(26,522	)
Effect of change in expected cash flows on covered assets		(11,098	)		(11,049	)		(9,061	)
Ending balance	$	160,927		$	177,187		$	59,179