NOTE 5 – ASSETS ACQUIRED IN FDIC-ASSISTED ACQUISITIONS

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


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

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

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

The following table summarizes components of all covered assets at June 30, 2013, December 31, 2012 and June 30, 2012 and their origin:


	Covered loans		Less: Credit risk adjustments		Less: Liquidity and rate adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC indemnification asset
As of June 30, 2013:	(Dollars in Thousands)
AUB	$	23,721	$	2,114	$	—	$	21,607	$	4,847	$	—	$	4,847	$	26,454	$	4,526
USB		23,298		2,552		—		20,746		4,127		140		3,987		24,733		5,802
SCB		38,478		2,882		—		35,596		4,655		306		4,349		39,945		4,603
FBJ		29,154		5,086		—		24,068		2,037		209		1,828		25,896		5,632
DBT		132,707		27,386		—		105,321		23,594		2,003		21,591		126,912		27,957
TBC		37,560		3,206		93		34,261		7,069		1,650		5,419		39,680		6,083
HTB		74,867		9,702		45		65,120		10,868		3,436		7,432		72,552		13,314
OGB		70,644		11,450		118		59,076		10,244		3,948		6,296		65,372		14,591
CBG		99,363		21,521		120		77,722		8,519		2,090		6,429		84,151		23,005

Total	$	529,792	$	85,899	$	376	$	443,517	$	75,960	$	13,782	$	62,178	$	505,695	$	105,513


	Covered loans		Less: Credit risk adjustments		Less: Liquidity and rate adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC indemnification asset
As of December 31, 2012:	(Dollars in Thousands)
AUB	$	27,169	$	2,481	$	—	$	24,688	$	10,636	$	102	$	10,534	$	35,222	$	2,905
USB		27,286		4,320		—		22,966		7,087		99		6,988		29,954		6,619
SCB		41,389		3,285		—		38,104		10,686		654		10,032		48,136		6,133
FBJ		32,574		6,204		27		26,343		3,260		526		2,734		29,077		6,589
DBT		169,527		41,631		207		127,689		30,395		2,160		28,235		155,924		47,012
TBC		46,796		4,979		173		41,644		11,089		1,381		9,708		51,352		8,073
HTB		90,602		16,072		52		74,478		13,980		4,954		9,026		83,504		20,020
OGB		81,908		17,127		136		64,645		9,168		4,078		5,090		69,735		16,871
CBG		124,200		36,884		161		87,155		9,046		3,120		5,926		93,081		45,502

Total	$	641,451	$	132,983	$	756	$	507,712	$	105,347	$	17,074	$	88,273	$	595,985	$	159,724


	Covered loans		Less: Credit risk adjustments		Less: Liquidity and rate adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC indemnification asset
As of June 30, 2012:	(Dollars in Thousands)
AUB	$	29,740	$	2,542	$	—	$	27,198	$	11,489	$	—	$	11,489	$	38,687	$	2,620
USB		40,355		4,666		—		35,689		7,192		50		7,142		42,831		6,757
SCB		46,033		840		—		45,193		11,078		646		10,432		55,625		4,663
FBJ		35,618		6,645		59		28,914		2,787		515		2,272		31,186		7,051
DBT		222,724		60,218		455		162,051		24,121		1,422		22,699		184,750		65,684
TBC		63,593		8,155		252		55,186		8,616		1,184		7,432		62,618		14,838
HTB		98,624		20,676		60		77,888		16,860		6,499		10,361		88,249		25,249
OGB		88,717		22,041		156		66,520		13,397		6,573		6,824		73,344		26,105
CBG		153,342		50,037		207		103,098		8,637		3,821		4,816		107,914		50,834

Total	$	778,746	$	175,820	$	1,189	$	601,737	$	104,177	$	20,710	$	83,467	$	685,204	$	203,801

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, 2013		December 31, 2012		June 30, 2012
	(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)	$	39,278	$	23,050	$	8,189

Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		3,950		13,190		7,185

Amounts reflected in the Company’s Statement of Operations	June 30, 2013		December 31, 2012		June 30, 2012
	(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)	$	2,942	$	4,610	$	1,638

Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		790		2,638		1,437

A rollforward of acquired loans with deterioration of credit quality for the six months ended June 30, 2013, the year ended December 31, 2012 and the six months ended June 30, 2012 is shown below:


(Dollars in Thousands)	June 30, 2013			December 31, 2012			June 30, 2012
Balance, January 1	$	282,737		$	307,790		$	307,790
Change in estimate of cash flows, net of charge-offs or recoveries		(8,464	)		(17,712	)		(3,702	)
Additions due to acquisitions		—			73,414			73,414
Other (loan payments, transfers, etc.)		(24,658	)		(80,755	)		(44,164	)

Ending balance	$	249,615		$	282,737		$	333,338

A rollforward of acquired loans without deterioration of credit quality for the six months ended June 30, 2013, the year ended December 31, 2012 and the six months ended June 30, 2012 is shown below:


(Dollars in Thousands)	June 30, 2013			December 31, 2012			June 30, 2012
Balance, January 1	$	228,602		$	266,966		$	266,966
Change in estimate of cash flows, net of charge-offs or recoveries		(3,199	)		1,376			1,152
Additions due to acquisitions		—			51,368			51,367
Other (loan payments, transfers, etc.)		(31,205	)		(91,108	)		(42,627	)

Ending balance	$	194,198		$	228,602		$	276,858

The following is a summary of changes in the accretable discounts of acquired loans during the six months ended June 30, 2013, the year ended December 31, 2012 and the six months ended June 30, 2012.


(Dollars in Thousands)	June 30, 2013			December 31, 2012			June 30, 2012
Balance, January 1	$	16,698		$	29,537		$	29,537
Additions due to acquisitions		—			9,863			9,863
Accretion		(25,841	)		(45,752	)		(25,166	)
Other activity, net		39,278			23,050			8,189

Ending balance	$	30,135		$	16,698		$	22,423

The shared-loss agreements are subject to the servicing procedures as specified in the agreement with the FDIC. The expected reimbursements under the shared-loss agreements were recorded as an indemnification asset at their estimated fair values on the acquisition dates. Changes in the FDIC shared-loss receivable for the six months ended June 30, 2013, for the year ended December 31, 2012 and for the six months ended June 30, 2012 are as follows:


(Dollars in Thousands)	June 30, 2013			December 31, 2012			June 30, 2012
Balance, January 1	$	159,724		$	242,394		$	242,394
Indemnification asset recorded in acquisitions		—			52,654			52,654
Payments received from FDIC		(45,604	)		(128,730	)		(86,482	)
Effect of change in expected cash flows on covered assets		(8,607	)		(6,594	)		(4,765	)

Ending balance	$	105,513		$	159,724		$	203,801