NOTE 2. ASSETS ACQUIRED IN FDIC-ASSISTED ACQUISITIONS

From October 2009 through July 2011, the Company has participated in eight FDIC-assisted acquisitions (the "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

The following table summarizes the total assets purchased and liabilities assumed, as well as key elements of the purchase and assumption agreements between the FDIC and the Bank (in thousands):


	AUB			USB			SCB			FBJ			TBC			DBT			HTB			OGB
Acquisition date		10/23/09			11/06/09			05/14/10			10/22/10			11/12/10			11/12/10			07/15/11			07/15/11
Assets, fair value	$	120,994		$	169,172		$	84,342		$	77,709		$	132,036		$	448,311		$	197,463		$	166,052
Deposits, fair value	$	100,470		$	141,094		$	75,530		$	71,869		$	132,939		$	386,958		$	175,887		$	136,101
Other borrowings	$	7,802		$	1,504		$	—		$	2,613		$	—		$	54,418		$	—		$	21,107
Discount bid	$	19,645		$	32,615		$	14,395		$	4,810		$	3,973		$	45,002		$	33,500		$	22,500
Deposit premium	$	262		$	228		$	92		$	—		$	—		$	—		$	—		$	—
Cash received/(paid)	$	17,100		$	24,200		$	(35,657	)	$	8,117		$	(10,251	)	$	(149,893	)	$	30,228		$	(5,658	)
Gain/(Goodwill)	$	12,445		$	26,121		$	8,208		$	2,385		$	(956	)	$	4,211		$	18,922		$	7,945

FDIC loss sharing – Tranche 1
Cumulative Loss threshold	$	38,000		$	46,000			All losses			All losses			All losses		$	131,772			All losses			All losses
Percentage retained by FDIC		80	%		80	%		80	%		80	%		80	%		80	%		80	%		80	%

FDIC loss sharing – Tranche 2
Cumulative Loss threshold	$	>38,000		$	>46,000			n/a			n/a			n/a		$	193,068			n/a			n/a
Percentage retained by FDIC		95	%		95	%		n/a			n/a			n/a			30	%		n/a			n/a

FDIC loss sharing – Tranche 3
Cumulative Loss threshold		n/a			n/a			n/a			n/a			n/a		$	>193,068			n/a			n/a
Percentage retained by FDIC		n/a			n/a			n/a			n/a			n/a			80	%		n/a			n/a

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisitions (in thousands):


	AUB		USB		SCB			FBJ		TBC			DBT			HTB		OGB
Assets acquired
Cash	$	26,452	$	41,490	$	(33,093	)	$	10,669	$	4,862		$	(58,158	)	$	36,432	$	1,585
Investment securities		10,242		8,335		10,814			7,343		7,060			105,562			14,770		28,891
Federal funds sold		—		2,605		12,661			5,690		—			—			—		5,070
Loans		56,482		83,646		68,751			40,454		92,568			261,340			84,732		74,843
Foreclosed property		2,165		8,069		2,012			1,816		3,472			22,026			10,272		7,242
FDIC loss share asset		24,200		21,640		22,400			11,307		22,807			112,404			49,485		45,488
Core deposit intangible		187		386		185			132		175			1,180			—		—
Other assets		1,266		3,001		612			298		1,092			3,957			1,772		2,933

Total assets acquired	$	120,994	$	169,172	$	84,342		$	77,709	$	132,036		$	448,311		$	197,463	$	166,052

Liabilities assumed
Deposits	$	100,470	$	141,094	$	75,530		$	71,869	$	132,939		$	386,958		$	175,887	$	136,101
FHLB advances		7,802		1,504		—			2,613		—			2,724			—		21,107
Other liabilities		277		453		604			842		53			54,418			2,654		899

Total liabilities assumed	$	108,549	$	143,051	$	76,134		$	75,324	$	132,992		$	444,100		$	178,541	$	158,107

Net assets acquired	$	12,445	$	26,121	$	8,208		$	2,385	$	(956	)	$	4,211		$	18,922	$	7,945

The results of operations of AUB, USB, SCB, FBJ, TBC, DBT, 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).


	Year Ended December 31, Unaudited
	2011		2010
Net interest income and noninterest income	$	172,205	$	137,442
Net income (loss)	$	9,794	$	(25,539	)
Net income (loss) available to common stockholders	$	6,553	$	(28,752	)
Income (loss) per common share available to common stockholders – basic and diluted	$	0.28	$	(1.40	)
Average number shares outstanding, basic		23,458		21,969
Average number shares outstanding, diluted		23,612		21,969

Based upon the acquisition date fair values of the net assets acquired, $956,000 of goodwill was recorded on the TBC acquisition in 2010. The HTB and OGB acquisitions resulted in a gain of $26.8 million, before tax, which is included in the Company's December 31, 2011 consolidated statements of operations. Due to the difference in tax bases of the assets acquired and liabilities assumed, the Bank recorded a deferred tax liability of $9.4 million, resulting in an after-tax gain of $17.5 million during 2011. The SCB, FBJ and DBT acquisitions resulted in a gain of $14.7 million, before tax, which is included in the Company's December 31, 2010 consolidated statements of operations. Due to the difference in tax bases of the assets acquired and liabilities assumed, the Bank recorded a deferred tax liability of $5.2 million, resulting in an after-tax gain of $9.6 million during 2010. The AUB and USB transactions resulted in a gain of $38.6 million, before tax, which is included in the Company's December 31, 2009 consolidated statements of operations. Due to the difference in tax bases of the assets acquired and liabilities assumed, the Bank recorded a deferred tax liability of $13.5 million, resulting in an after-tax gain of $25.1 million during 2009.

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 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 decreases, the Company records a provision for loan loss in its consolidated statement of operations.

On the acquisition date, the preliminary estimate of the contractually required payments receivable for all ASC 310 loans acquired in the acquisitions was $746.9 million and the estimated fair value of the loans was $397.2 million, net of an accretable discount of $61.4 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 include the effects of estimated prepayments.

Loans acquired for which it was probable at acquisition that all contractually required payments would not be collected are as follows.

The covered loans with deterioration of credit quality on the respective acquisition dates are presented in the following table:


	AUB		USB		SCB		FBJ		TBC		DBT		HTB		OGB		Total Loans with Deterioration of Credit Quality
	(Dollars in thousands)
Construction and development	$	16,513	$	16,086	$	8,976	$	4,821	$	2,435	$	21,800	$	6,508	$	4,783	$	81,922
Real estate secured		8,460		3,987		16,422		13,279		20,305		111,973		67,497		35,621		277,544
Commercial, industrial, agricultural		12,102		769		73		886		7,134		5,379		153		9,263		35,759
Consumer		2		633		—		252		99		666		58		253		1,963

	$	37,077	$	21,475	$	25,471	$	19,238	$	29,973	$	139,818	$	74,216	$	49,920	$	397,188

The covered loans without deterioration of credit quality on the respective acquisition dates are presented in the following table:


	AUB		USB		SCB		FBJ		TBC		DBT		HTB		OGB		Total Loans without Deterioration of Credit Quality
	(Dollars in thousands)
Construction and development	$	991	$	14,190	$	7,824	$	3,163	$	4,513	$	15,571	$	53	$	3,346	$	49,651
Real estate secured		3,583		37,100		33,160		17,040		34,056		91,097		9,423		19,716		245,175
Commercial, industrial, agricultural		14,393		6,135		1,568		526		22,260		11,891		242		1,471		58,486
Consumer		438		4,746		728		487		1,766		2,963		798		390		12,316

	$	19,405	$	62,171	$	43,280	$	21,216	$	62,595	$	121,522	$	10,516	$	24,923	$	365,628

The total covered loans on the respective acquisition dates are presented in the following table:


	AUB		USB		SCB		FBJ		TBC		DBT		HTB		OGB		Total Covered Loans
	(Dollars in thousands)
Construction and development	$	17,504	$	30,276	$	16,800	$	7,984	$	6,948	$	37,371	$	6,561	$	8,129	$	131,573
Real estate secured		12,043		41,087		49,582		30,319		54,361		203,070		76,920		55,337		522,719
Commercial, industrial, agricultural		26,495		6,904		1,641		1,412		29,394		17,270		395		10,734		94,245
Consumer		440		5,379		728		739		1,865		3,629		856		643		14,279

	$	56,482	$	83,646	$	68,751	$	40,454	$	92,568	$	261,340	$	84,732	$	74,843	$	762,816

The following table presents the loans receivable (in thousands) at the acquisition date for loans with deterioration in credit quality.


2011 Acquisitions:	HTB		OGB		Total
	(Dollars in thousands)
Contractually required principal payments receivable	$	136,928	$	104,858	$	241,786
Non-accretable difference		49,447		45,629		95,076

Present value of cash flows expected to be collected		87,481		59,229		146,710
Accretable difference		13,265		9,309		22,574

Fair value of loans acquired with deterioration of credit quality	$	74,216	$	49,920	$	124,136


2010 Acquisitions:	SCB		FBJ		TBC		DBT		Total
	(Dollars in thousands)
Contractually required principal payments receivable	$	49,864	$	29,474	$	51,908	$	225,262	$	356,508
Non-accretable difference		22,885		6,672		20,569		56,637		106,763

Present value of cash flows expected to be collected		26,979		22,802		31,339		168,625		249,745
Accretable difference		1,508		3,564		1,366		28,807		35,245

Fair value of loans acquired with deterioration of credit quality	$	25,471	$	19,238	$	29,973	$	139,818	$	214,500


2009 Acquisitions:	AUB		USB		Total
	(Dollars in thousands)
Contractually required principal payments receivable	$	65,438	$	44,372	$	109,810
Non-accretable difference		26,416		21,292		47,708

Present value of cash flows expected to be collected		39,022		23,080		62,102
Accretable difference		1,945		1,605		3,550

Fair value of loans acquired with deterioration of credit quality	$	37,077	$	21,475	$	58,552

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


	AUB		USB		SCB		FBJ		TBC		DBT		HTB		OGB		Total
As of December 31, 2011:					(Dollars in thousands)
Covered loans	$	34,242	$	51,409	$	56,780	$	40,106	$	79,586	$	260,883	$	110,899	$	105,285	$	739,190
Less discount related to credit quality		3,236		5,259		5,779		7,473		14,358		68,757		28,024		33,221		166,107
Less other discount		—		50		155		92		331		703		73		190		1,594

Total Covered Loans	$	31,006	$	46,100	$	50,846	$	32,541	$	64,897	$	191,423	$	82,802	$	71,874	$	571,489

OREO	$	11,100	$	7,445	$	10,635	$	2,370	$	8,441	$	28,947	$	20,132	$	12,615	$	101,685
Less fair value adjustments		—		50		500		641		1,274		2,763		10,171		7,669		23,068

Covered OREO	$	11,100	$	7,395	$	10,135	$	1,729	$	7,167	$	26,184	$	9,961	$	4,946	$	78,617

Total covered assets	$	42,106	$	53,495	$	60,981	$	34,270	$	72,064	$	217,607	$	92,763	$	76,820	$	650,106

FDIC loss-share receivable	$	7,271	$	10,648	$	6,527	$	8,551	$	18,628	$	105,528	$	48,289	$	36,952	$	242,394


	AUB		USB		SCB		FBJ		TBC		DBT		Total
As of December 31, 2010:	(Dollars in thousands)
Covered loans	$	53,203	$	77,188	$	76,472	$	48,632	$	113,283	$	380,238	$	749,016
Less discount related to credit quality		4,332		7,593		12,336		10,532		25,388		130,769		190,950
Less other discount		214		547		506		151		458		1,199		3,075

Total Covered Loans	$	48,657	$	69,048	$	63,630	$	37,949	$	87,437	$	248,270	$	554,991

OREO	$	13,207	$	11,473	$	8,311	$	2,799	$	4,178	$	42,724	$	82,692
Less fair value adjustments		783		74		1,373		2,500		2,031		21,000		27,761

Covered OREO	$	12,424	$	11,399	$	6,938	$	299	$	2,147	$	21,724	$	54,931

Total covered assets	$	61,081	$	80,447	$	70,568	$	38,248	$	89,584	$	269,994	$	609,922

FDIC loss-share receivable	$	4,208	$	6,862	$	14,333	$	11,944	$	27,436	$	112,404	$	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. The adjustments to estimated cash flows are performed on a loan-by-loan basis and have resulted in the following:


Total Amounts	December 31, 2011		December 31, 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 discount)	$	22,031	$	30,448

Adjustments needed where the Company's initial estimate of cash flows were overstated: (recorded through a provision for loan losses)	$	11,940	$	8,410

Amounts reflected in the Company's Statement of Operations	December 31, 2011		December 31, 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 discount)	$	4,406	$	4,245

Adjustments needed where the Company's initial estimate of cash flows were overstated: (recorded through a provision for loan losses)	$	2,388	$	1,682

A rollforward of acquired loans with deterioration of credit quality for the years ended December 31, 2011 and 2010 is shown below:


	2011			2010
	(Dollars in thousands)
Balance, beginning of year	$	252,535		$	56,793
Change in estimate of cash flows, net of charge-offs or recoveries		(25,787	)		(8,081	)
Additions due to acquisitions		124,136			214,500
Other (loan payments, transfers, etc.)		(43,094	)		(10,677	)

Balance, end of year	$	307,790		$	252,535

A rollforward of acquired loans without deterioration of credit quality for the years ended December 31, 2011 and 2010 is shown below:


	2011			2010
	(Dollars in thousands)
Balance, beginning of year	$	302,456		$	80,635
Change in estimate of cash flows, net of charge-offs or recoveries		(11,604	)		(7,044	)
Additions due to acquisitions		35,439			248,583
Other (loan payments, transfers, etc.)		(59,325	)		(19,718	)

Balance, end of year	$	266,966		$	302,456

The following is a summary of changes in the accretable discounts of acquired loans during the years ended December 31, 2011 and 2010.


	2011			2010
	(Dollars in thousands)
Balance, beginning of year	$	37,383		$	3,550
Additions due to acquisitions		24,094			35,245
Accretion		(36,519	)		(7,502	)
Other activity, net		4,579			6,090

Balance, end of year	$	29,537		$	37,383

The loss-sharing agreements are subject to the servicing procedures as specified in the agreement with the FDIC. The expected reimbursements under the loss-sharing agreements were recorded as an indemnification asset at their estimated fair value of $95.0 million, $168.9 million and $45.8 million on the 2011, 2010 and 2009 acquisition dates, respectively. Changes in the FDIC loss-share receivable are as follows:


	For the Years Ended December 31,
	2011			2010
	(Dollars in Thousands)
Beginning balance	$	177,187		$	45,840

Indemnification asset recorded in acquisitions		94,973			168,918
Payments received from FDIC		(36,813	)		(26,522	)
Effect of change in expected cash flows on covered assets		7,047			(11,049	)

Ending balance	$	242,394		$	177,187