NOTE 6 – 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 March 31, 2014, December 31, 2013 and March 31, 2013 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 March 31, 2014:	(Dollars in thousands)
AUB	$	13,629	$	220	$	—	$	13,409	$	4,264	$	—	$	4,264	$	17,673	$	1,190
USB		15,668		935		—		14,733		3,366		135		3,231		17,964		535
SCB		33,896		1,274		—		32,622		3,122		303		2,819		35,441		2,781
FBJ		24,281		2,768		—		21,513		1,850		253		1,597		23,110		3,034
DBT		100,909		13,138		—		87,771		12,250		1,092		11,158		98,929		14,947
TBC		31,576		2,119		—		29,457		4,681		761		3,920		33,377		3,425
HTB		61,560		6,596		34		54,930		7,263		2,349		4,914		59,844		8,540
OGB		55,569		4,564		89		50,916		8,169		2,984		5,185		56,101		6,815
CBG		77,767		10,364		60		67,343		7,127		1,579		5,548		72,891		11,914

Total	$	414,855	$	41,978	$	183	$	372,694	$	52,092	$	9,456	$	42,636	$	415,330	$	53,181

	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, 2013:	(Dollars in thousands)
AUB	$	15,787	$	231	$	—	$	15,556	$	4,264	$	—	$	4,264	$	19,820	$	1,452
USB		18,504		1,427		—		17,077		2,865		141		2,724		19,801		889
SCB		34,637		1,483		—		33,154		3,461		303		3,158		36,312		3,175
FBJ		25,891		3,730		—		22,161		1,880		242		1,638		23,799		3,689
DBT		105,157		17,819		—		87,338		17,023		1,282		15,741		103,079		18,724
TBC		32,590		2,340		14		30,236		4,844		745		4,099		34,335		3,721
HTB		67,126		7,321		38		59,767		6,374		2,304		4,070		63,837		9,325
OGB		58,512		4,969		98		53,445		7,506		2,984		4,522		57,967		9,645
CBG		85,118		13,535		80		71,503		7,610		1,933		5,677		77,180		14,821

Total	$	443,322	$	52,855	$	230	$	390,237	$	55,827	$	9,934	$	45,893	$	436,130	$	65,441


	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 March 31, 2013:	(Dollars in thousands)
AUB	$	25,001	$	2,508	$	—	$	22,493	$	8,079	$	100	$	7,979	$	30,472	$	4,176
USB		25,921		3,879		—		22,042		5,379		139		5,240		27,282		9,932
SCB		40,008		3,189		—		36,819		6,670		299		6,371		43,190		8,189
FBJ		31,479		5,662		11		25,806		1,450		93		1,357		27,163		6,840
DBT		146,178		35,461		83		110,634		25,990		1,895		24,095		134,729		37,333
TBC		42,302		4,450		133		37,719		10,478		1,814		8,664		46,383		8,050
HTB		82,202		14,068		49		68,085		14,823		3,445		11,378		79,463		21,423
OGB		73,279		14,877		127		58,275		10,384		4,144		6,240		64,515		18,687
CBG		109,596		30,605		140		78,851		8,424		1,833		6,591		85,442		46,349

Total	$	575,966	$	114,699	$	543	$	460,724	$	91,677	$	13,762	$	77,915	$	538,639	$	160,979

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	March 31, 2014		December 31, 2013		March 31, 2013
	(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)	$	5,622	$	51,003	$	4,052
Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		1,125		7,695		1,600


Amounts reflected in the Company’s Statement of Earnings	March 31, 2014		December 31, 2013		March 31, 2013
	(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)	$	1,124	$	10,201	$	810
Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		225		1,539		320

A rollforward of acquired loans with deterioration of credit quality for the three months ended March 31, 2014, the year ended December 31, 2013 and the three months ended March 31, 2013 is shown below:


(Dollars in Thousands)	March 31, 2014			December 31, 2013			March 31, 2013
Balance, January 1	$	217,047		$	282,737		$	282,737
Change in estimate of cash flows, net of charge-offs or recoveries		4,659			35,306			(5,391	)
Additions due to acquisitions		—			—			—
Other (loan payments, transfers, etc.)		(16,505	)		(100,996	)		(22,279	)

Ending balance	$	205,201		$	217,047		$	255,067

A rollforward of acquired loans without deterioration of credit quality for the three months ended March 31, 2014, the year ended December 31, 2013 and the three months ended March 31, 2013 is shown below:


(Dollars in Thousands)	March 31, 2014			December 31, 2013			March 31, 2013
Balance, January 1	$	173,190		$	228,602		$	228,602
Change in estimate of cash flows, net of charge-offs or recoveries		2,571			13,471			(2,625	)
Additions due to acquisitions		—			—			—
Other (loan payments, transfers, etc.)		(8,268	)		(68,883	)		(20,229	)

Ending balance	$	167,493		$	173,190		$	205,748

The following is a summary of changes in the accretable discounts of acquired loans during the three months ended March 31, 2014, the year ended December 31, 2013 and the three months ended March 31, 2013:


(Dollars in Thousands)	March 31, 2014			December 31, 2013			March 31, 2013
Balance, January 1	$	25,493		$	16,698		$	16,698
Additions due to acquisitions		—			—			—
Accretion		(15,024	)		(42,208	)		(7,218	)
Other activity, net		5,622			51,003			4,052

Ending balance	$	16,091		$	25,493		$	13,532

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 three months ended March 31, 2014, for the year ended December 31, 2013 and for the three months ended March 31, 2013 are as follows:


(Dollars in Thousands)	March 31, 2014			December 31, 2013			March 31, 2013
Balance, January 1	$	65,441		$	159,724		$	159,724
Indemnification asset recorded in acquisitions		—			—			—
Payments received from FDIC		(6,773	)		(68,822	)		(6,324	)
Effect of change in expected cash flows on covered assets		(5,487	)		(25,461	)		7,579

Ending balance	$	53,181		$	65,441		$	160,979