Assets Acquired In FDIC-Assisted Acquisitions

9 Months Ended

Sep. 30, 2011

Assets Acquired In FDIC-Assisted Acquisitions [Abstract]

Assets Acquired In FDIC-Assisted Acquisitions

NOTE 4 – ASSETS ACQUIRED IN FDIC-ASSISTED ACQUISITIONS

From October 2009 through July 2011, the Company participated in eight 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
High Trust Bank ("HTB")	Stockbridge, Ga.	2	July 15, 2011
One Georgia Bank ("OGB")	Midtown Atlanta, Ga.	1	July 15, 2011

On July 15, 2011, the Bank purchased substantially all of the assets and assumed substantially all the liabilities of High Trust Bank ("HTB") and One Georgia Bank ("OGB") from the FDIC, as Receiver of HTB and OGB. HTB operated branches in Stockbridge and Leary, Georgia. OGB operated one branch in Midtown Atlanta, Georgia. The Company's agreements with the FDIC included shared-loss agreements which affords the Bank significant protection from losses associated with loans and OREO. Under the terms of the shared-loss agreements, the FDIC will absorb 80% of all losses and share 80% of all loss recoveries. The shared-loss agreement applicable to single family residential mortgage loans provides for FDIC loss sharing and reimbursement by the Bank to the FDIC for ten years. The shared-loss agreement applicable to commercial loans and securities provides for FDIC loss sharing for five years and reimbursement by the Bank to the FDIC for eight years.

The estimated fair value of the assets acquired and the liabilities assumed are shown below:

(Dollars in Thousands)	High Trust Bank		One Georgia Bank
Assets acquired:
Cash and due from banks	$	6,204	$	7,243
Federal funds sold		—		5,070
Securities available for sale		14,770		28,891
Loans		84,732		74,843
Foreclosed property		10,272		7,242
Estimated FDIC indemnification asset		49,485		45,488
Other assets		1,772		2,933
Assets acquired		167,235		171,710
Cash received (paid) to settle the acquisition		30,228		(5,658	)
Fair value of assets acquired	$	197,463	$	166,052
Liabilities assumed:
Deposits	$	175,887	$	136,101
Other borrowings		—		21,107
Other liabilities		2,654		899
Fair value of liabilities assumed	$	178,541	$	158,107
Net assets acquired / gain from acquisition	$	18,922	$	7,945

The Company's bid to acquire the assets of HTB included a discount of approximately $33.5 million, and the Company received a $30.2 million cash payment from the FDIC to settle the acquisition. The Company's bid to acquire the assets of OGB included a discount of approximately $22.5 million, and the Company paid the FDIC $5.7 million in cash to settle the acquisition.

The shared-loss agreements are subject to the servicing procedures as specified in the agreements with the FDIC. The expected reimbursements under the HTB and OGB loss-sharing agreements were recorded as an indemnification asset at their estimated fair values of $49.5 million and $45.5 million, respectively, on the acquisition date. Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded on either transaction.

The HTB and OGB transactions resulted in before-tax gains of $18.9 million and $7.9 million, respectively, which are included in the Company's September 30, 2011 Consolidated Statement of Operations. Due to the difference in tax bases of the assets acquired and liabilities assumed, the Bank recorded deferred tax liabilities with respect to HTB and OGB of $6.6 million and $2.8 million, respectively, resulting in after-tax gains of $12.3 million and $5.1 million, respectively.

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

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

On the acquisition date, the preliminary estimates of the contractually required payments receivable for all ASC 310 loans acquired in the HTB acquisition totaled $136.9 million and the estimated fair values of the loans totaled $74.2 million, net of an accretable yield of $13.3 million, the difference between the value of the loans on the Company's balance sheet and the cash flows they are expected to produce. On the acquisition date, the preliminary estimates of the contractually required payments receivable for all ASC 310 loans acquired in the OGB acquisition totaled $104.9 million and the estimated fair values of the loans totaled $49.9 million, net of an accretable yield of $9.3 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 estimated fair values of loans acquired in the HTB and OGB acquisitions are detailed below based on their initial estimate of credit quality (dollars in thousands):

	Loans with deterioration of credit quality		Loans without a deterioration of credit quality		Total loans, at fair value
High Trust Bank:
Commercial, industrial, agricultural	$	153	$	242	$	395
Real estate – residential		5,025		3,525		8,550
Real estate – commercial & farmland		62,472		5,898		68,370
Construction & development		6,508		53		6,561
Consumer		58		798		856
	$	74,216	$	10,516	$	84,732
One Georgia Bank:
Commercial, industrial, agricultural	$	9,263	$	1,471	$	10,734
Real estate – residential		4,308		1,745		6,053
Real estate – commercial & farmland		31,313		17,971		49,284
Construction & development		4,783		3,346		8,129
Consumer		253		390		643
	$	49,920	$	24,923	$	74,843

The results of operations of HTB and OGB subsequent to the acquisition date are included in the Company's consolidated statements of operations. The following unaudited pro forma information reflects the Company's estimated consolidated results of operations as if the acquisitions had occurred on December 31, 2010 and 2009, unadjusted for potential cost savings (in thousands).

	Three Months Ended September 30,					Nine Months Ended September 30,
	2011		2010			2011		2010
Net interest income and noninterest income	$	62,062	$	29,824		$	132,519	$	98,309
Net income (loss)	$	15,649	$	(5,439	)	$	8,653	$	(17,743	)
Net income (loss) available to common stockholders	$	14,832	$	(6,246	)	$	6,231	$	(20,145	)
Income (loss) per common share available to common stockholders – basic	$	0.63	$	(0.26	)	$	0.27	$	(1.03	)
Income (loss) per common share available to common stockholders – diluted	$	0.63	$	(0.26	)	$	0.26	$	(1.03	)
Average number of shares outstanding, basic		23,438		23,571			23,439		19,569
Average number of shares outstanding, diluted		23,559		23,571			23,530		19,569

In addition to the covered assets acquired in the most recent acquisitions, the Company has other investments in covered assets remaining from its previous FDIC-assisted acquisitions. The following table summarizes components of all covered assets at September 30, 2011 and December 31, 2010 and their origin:

	HTB		OGB		SCB		FBJ		TBC		DBT		AUB		USB		Total
As of September 30, 2011:					(Dollars in thousands)
Covered loans	$	129,269	$	110,188	$	58,748	$	42,499	$	90,044	$	313,029	$	39,217	$	58,121	$	841,115
Less adjustments related to credit risk		47,738		40,609		6,029		8,239		18,995		112,480		3,594		5,913		243,597
Less adjustments related to liquidity and yield		73		190		258		108		371		827		64		199		2,090
Total Covered Loans	$	81,458	$	69,389	$	52,461	$	34,152	$	70,678	$	199,722	$	35,559	$	52,009	$	595,428
OREO	$	21,953	$	19,242	$	10,957	$	3,037	$	6,955	$	35,672	$	13,415	$	7,489	$	118,720
Less fair value adjustments		12,618		12,000		500		1,559		1,274		8,774		37		51		36,813
Covered OREO	$	9,335	$	7,242	$	10,457	$	1,478	$	5,681	$	26,898	$	13,378	$	7,438	$	81,907
Total covered assets	$	90,793	$	76,631	$	62,918	$	35,630	$	76,359	$	226,620	$	48,937	$	59,447	$	677,335
FDIC loss-share receivable	$	47,604	$	43,456	$	5,365	$	8,863	$	19,046	$	104,739	$	3,215	$	7,431	$	239,719

	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	September 30, 2011		December 31, 2010		September 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)	$	15,846	$	30,448	$	21,334
Adjustments needed where the Company's initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		8,055		8,410		5,102

Amounts reflected in the Company's Statement of Operations	September 30, 2011		December 31, 2010		September 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)	$	3,169	$	4,245	$	3,563
Adjustments needed where the Company's initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		1,611		1,682		1,020

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

(Dollars in Thousands)	September 30, 2011			December 31, 2010			September 30, 2010
Balance, January 1	$	252,535		$	56,793		$	56,793
Change in estimate of cash flows, net of charge-offs or recoveries		(18,815	)		(8,081	)		(3,076	)
Additions due to acquisitions		124,136			214,500			25,471
Other (loan payments, transfers, etc.)		(36,899	)		(10,677	)		(12,740	)
Ending balance	$	320,957		$	252,535		$	66,448

A rollforward of acquired loans without deterioration of credit quality for the nine months ended September 30, 2011, the year ended December 31, 2010 and the nine months ended September 30, 2010 is shown below:

(Dollars in Thousands)	September 30, 2011			December 31, 2010			September 30, 2010
Balance, January 1	$	302,456		$	80,635		$	80,635
Change in estimate of cash flows, net of charge-offs or recoveries		(16,886	)		(7,044	)		(6,647	)
Additions due to acquisitions		35,439			248,583			43,250
Other (loan payments, transfers, etc.)		(46,538	)		(19,718	)		1,602
Ending balance	$	274,471		$	302,456		$	118,840

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

(Dollars in Thousands)	September 30, 2011			December 31, 2010			September 30, 2010
Balance, January 1	$	37,383		$	3,550		$	3,550
Additions due to acquisitions		24,094			35,245			1,508
Accretion		(18,765	)		(7,502	)		(3,563	)
Other activity, net		(1,606	)		6,090			4,263
Ending balance	$	41,106		$	37,383		$	5,758

The shared-loss agreements are subject to the servicing procedures as specified in the agreement with the FDIC. The expected reimbursements under the shared-loss agreements were recorded as an indemnification asset at their estimated fair values of $95.0 million, $168.9 million and $45.8 million on the 2011, 2010 and 2009 acquisition dates, respectively. Changes in the FDIC shared-loss receivable for the nine months ended September 30, 2011, for the year ended December 31, 2010 and for the nine months ended September 30, 2010 are as follows:

(Dollars in Thousands)	September 30, 2011			December 31, 2010			September 30, 2010
Balance, January 1	$	177,187		$	45,840		$	45,840
Indemnification asset recorded in acquisitions		94,973			168,918			22,400
Payments received from FDIC		(22,107	)		(26,522	)		(21,232	)
Effect of change in expected cash flows on covered assets		(10,334	)		(11,049	)		(4,476	)
Ending balance	$	239,719		$	177,187		$	42,532