NOTE 2 – BUSINESS COMBINATIONS

Coastal Bankshares, Inc.

On June 30, 2014, the Company completed its acquisition of The Coastal Bankshares, Inc. (“Coastal”), a bank holding company headquartered in Savannah, Georgia. Upon consummation of the acquisition, Coastal was merged with and into the Company, with Ameris as the surviving entity in the merger. At that time, Coastal’s wholly owned banking subsidiary, The Coastal Bank (“Coastal Bank”), was also merged with and into the Bank. The acquisition grew the Company’s existing market presence, as Coastal Bank had a total of six banking locations in Chatham, Liberty and Effingham Counties, Georgia. Coastal’s common shareholders received 0.4671 of a share of the Company’s common stock in exchange for each share of Coastal’s common stock. As a result, the Company issued 1,598,998 common shares at a fair value of $34.5 million and paid $2.8 million cash in exchange for outstanding warrants.

The acquisition of Coastal was accounted for using the purchase method of accounting in accordance with FASB ASC 805, Business Combinations. Assets acquired, liabilities assumed and consideration exchanged were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available. During the third quarter of 2014, management revised its initial estimates regarding the valuation of other real estate owned. In addition, during the third quarter of 2014, management completed its assessment and recorded the deferred tax assets resulting from differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for income tax purposes. This estimate also reflects acquired net operating loss carryforwards and other acquired assets with built-in losses that are expected to be settled or otherwise recovered in future periods where the realization of such benefits would be subject to applicable limitations under Sections 382 of the Internal Revenue Code of 1986, as amended.

The following table presents the assets acquired and liabilities of Coastal assumed as of June 30, 2014 and their fair value estimates:


(Dollars in Thousands)	As Recorded by Coastal			Initial Fair Value Adjustments			Subsequent Fair Value Adjustments			As Recorded by Ameris
Assets
Cash and cash equivalents	$	3,895		$	—		$	—		$	3,895
Federal funds sold and interest-bearing balances		15,923			—			—			15,923
Investment securities		67,266			(500	)(a)		—			66,766
Other investments		975			—			—			975
Mortgage loans held for sale		7,288			—			—			7,288
Loans		296,141			(16,700	)(b)		—			279,441
Less allowance for loan losses		(3,218	)		3,218	(c)		—			—

Loans, net		292,923			(13,482	)		—			279,441
Other real estate owned		14,992			(3,528	)(d)		(2,600	)(g)		8,864
Premises and equipment		11,882			—			—			11,882
Intangible assets		507			4,266	(e)		—			4,773
Other assets		22,710			—			2,624	(h)		25,334

Total assets	$	438,361		$	(13,244	)	$	24		$	425,141

Liabilities
Deposits:
Noninterest-bearing	$	80,012		$	—		$	—		$	80,012
Interest-bearing		289,012			—			—			289,012

Total deposits		369,024			—			—			369,024
Federal funds purchased and securities sold under agreements to repurchase		5,428			—			—			5,428
Other borrowings		22,005			—			—			22,005
Other liabilities		6,192			—			—			6,192
Subordinated deferrable interest debentures		15,465			(6,413	)(f)		—			9,052

Total liabilities		418,114			(6,413	)		—			411,701

Net identifiable assets acquired over (under) liabilities assumed		20,247			(6,831	)		—			13,440
Goodwill		—			23,854			24			23,830

Net assets acquired over (under) liabilities assumed	$	20,247		$	17,023		$	—		$	37,270

Consideration:
Ameris Bancorp common shares issued		1,598,998
Purchase price per share of the Company’s common stock	$	21.56

Company common stock issued		34,474
Cash exchanged for shares		2,796

Fair value of total consideration transferred	$	37,270

Explanation of fair value adjustments

(a)

Adjustment reflects the fair value adjustments of the available for sale portfolio as of the acquisition date.

(b)

Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.

(c)

Adjustment reflects the elimination of Coastal’s allowance for loan losses.

(d)

Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired OREO portfolio.

(e)

Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts.

(f)

Adjustment reflects the fair value adjustment to the subordinated deferrable interest debentures at the acquisition date.

(g)

Adjustment reflects the additional fair value adjustment based on the Company’s evaluation of the acquired OREO portfolio.

(h)

Adjustment reflects the deferred taxes on the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.

Goodwill of $23.8 million, which is the excess of the merger consideration over the fair value of net assets acquired, was recorded in the Coastal acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

The results of operations of Coastal 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 acquisition had occurred on January 1, 2013, unadjusted for potential cost savings (in thousands).


	Three Months Ended September 30,		Nine Months Ended September 30,
	2013		2014		2013
Net interest income and noninterest income	$	46,373	$	165,913	$	137,590
Net income	$	6,680	$	26,275	$	19,733
Net income available to common stockholders	$	6,237	$	25,989	$	18,407
Income per common share available to common stockholders – basic	$	0.24	$	0.95	$	0.72
Income per common share available to common stockholders – diluted	$	0.24	$	0.94	$	0.71
Average number of shares outstanding, basic		25,500		27,304		25,482
Average number of shares outstanding, diluted		25,915		27,698		25,897

In the acquisition, the Company purchased $279.4 million of loans at fair value, net of $16.7 million, or 5.64%, estimated discount to the outstanding principal balance. Of the total loans acquired, management identified $29.3 million that were considered to be credit impaired and are accounted for under ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payment, management’s estimate of expected total cash payments and fair value of the loans as of acquisition date for purchased credit impaired loans. Contractually required principal and interest payment have been adjusted for estimated prepayments.


Contractually required principal and interest	$	38,194
Non-accretable difference		(5,632	)

Cash flows expected to be collected		32,562
Accretable yield		(3,282	)

Total purchased credit-impaired loans acquired	$	29,280

Prosperity Banking Company

On December 23, 2013, the Company completed its acquisition of The Prosperity Banking Company (“Prosperity”), a bank holding company headquartered in Saint Augustine, Florida. Upon consummation of the acquisition, Prosperity was merged with and into the Company, with Ameris as the surviving entity in the merger. At that time, Prosperity’s wholly owned banking subsidiary, Prosperity Bank, was also merged with and into the Bank. Prosperity Bank had a total of 12 banking locations, with the majority of the franchise concentrated in northeast Florida. Prosperity’s common shareholders were entitled to elect to receive either 3.125 shares of the Company’s common stock or $41.50 in cash in exchange for each share of Prosperity’s voting common stock. As a result of Prosperity shareholders’ elections, the Company issued 1,168,918 common shares at a fair value of $24.6 million.

The acquisition of Prosperity was accounted for using the purchase method of accounting in accordance with FASB ASC 805, Business Combinations. Assets acquired, liabilities assumed and consideration exchanged were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.

The following table presents the assets acquired and liabilities of Prosperity assumed as of December 23, 2013 and their initial fair value estimates:


(Dollars in Thousands)	As Recorded by Prosperity			Fair Value Adjustments			As Recorded by Ameris
Assets
Cash and cash equivalents	$	4,285		$	—		$	4,285
Federal funds sold and interest-bearing balances		21,687			—			21,687
Investment securities		151,863			411	(a)		152,274
Other investments		8,727			—			8,727
Loans		487,358			(37,662	)(b)		449,696
Less allowance for loan losses		(6,811	)		6,811	(c)		—

Loans, net		480,547			(30,851	)		449,696
Other real estate owned		6,883			(1,260	)(d)		5,623
Premises and equipment		36,293			—			36,293
Intangible assets		174			4,383	(e)		4,557
Other assets		26,600			1,192	(f)		27,792

Total assets	$	737,059		$	(26,125	)	$	710,934

Liabilities
Deposits:
Noninterest-bearing	$	149,242		$	—		$	149,242
Interest-bearing		324,441			—			324,441

Total deposits		473,683			—			473,683
Federal funds purchased and securities sold under agreements to repurchase		21,530			—			21,530
Other borrowings		185,000			12,313	(g)		197,313
Other liabilities		14,058			455	(h)		14,513
Subordinated deferrable interest debentures		29,500			(16,303	)(i)		13,197

Total liabilities		723,771			(3,535	)		720,236

Net identifiable assets acquired over (under) liabilities assumed		13,288			(22,590	)		(9,302	)
Goodwill		—			34,093			34,093

Net assets acquired over (under) liabilities assumed	$	13,288		$	11,503		$	24,791

Consideration:
Ameris Bancorp common shares issued		1,168,918
Purchase price per share of the Company’s common stock	$	21.07

Company common stock issued		24,629
Cash exchanged for shares		162

Fair value of total consideration transferred	$	24,791

Explanation of fair value adjustments

(a)

Adjustment reflects the fair value adjustments of the available for sale portfolio as of the acquisition date.

(b)

Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.

(c)

Adjustment reflects the elimination of Prosperity’s allowance for loan losses.

(d)	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired OREO portfolio.

(e)	Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts.

(f)

Adjustment reflects the adjustment to write-off the non-realizable portion of Prosperity’s deferred tax asset of ($6.644 million), to record the deferred tax asset generated by purchase accounting adjustments of $8.435 million and to record the fair value adjustment of other assets of ($0.599 million) at the acquisition date.

(g)	Adjustment reflects the fair value adjustment (premium) to the FHLB borrowings of $12.741 million and the fair value adjustment to the subordinated debt of $0.428 million.

(h)	Adjustment reflects the fair value adjustment of other liabilities at the acquisition date.

(i)	Adjustment reflects the fair value adjustment to the subordinated deferrable interest debentures at the acquisition date.

Goodwill of $34.1 million, which is the excess of the merger consideration over the fair value of net assets acquired, was recorded in the Prosperity acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

The results of operations of Prosperity 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 acquisition had occurred on January 1, 2013, unadjusted for potential cost savings (in thousands).


	Three Months Ended September 30,		Nine Months Ended September 30,
	2013		2013
Net interest income and noninterest income	$	48,541	$	142,390
Net income	$	7,214	$	18,729
Net income available to common stockholders	$	6,771	$	17,403
Income per common share available to common stockholders – basic	$	0.27	$	0.69
Income per common share available to common stockholders – diluted	$	0.27	$	0.68
Average number of shares outstanding, basic		25,070		25,052
Average number of shares outstanding, diluted		25,485		25,467

In the acquisition, the Company purchased $449.7 million of loans at fair value, net of $37.7 million, or 7.73%, estimated discount to the outstanding principal balance. Of the total loans acquired, management identified $67.2 million that were considered to be credit impaired and are accounted for under ASC Topic 310-30. The table below summarizes the total contractually required principal and interest cash payment, management’s estimate of expected total cash payments and fair value of the loans as of acquisition date for purchased credit impaired loans. Contractually required principal and interest payment have been adjusted for estimated prepayments.


Contractually required principal and interest	$	92,461
Non-accretable difference		(14,311	)

Cash flows expected to be collected		78,150
Accretable yield		(10,985	)

Total purchased credit-impaired loans acquired	$	67,165

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 carrying value. The adjustments are performed on a loan-by-loan basis and have resulted in the Company recording a $4,000 provision for loan loss expense during the three month period ended September 30, 2014. There were no adjustments needed during the twelve months ended December 31, 2013 and the nine months ended September 30, 2013.

A rollforward of purchased non-covered loans with deterioration of credit quality for the nine months ended September 30, 2014, the year ended December 31, 2013 and the nine months ended September 30, 2013 is shown below:


(Dollars in Thousands)	September 30, 2014			December 31, 2013		September 30, 2013
Balance, January 1	$	67,165		$	—	$	—
Charge-offs, net of recoveries		(4	)		—		—
Additions due to acquisitions		29,280			67,165		—
Other (loan payments, transfers, etc.)		(4,440	)		—		—

Ending balance	$	92,001		$	67,165	$	—

A rollforward of purchased non-covered loans without deterioration of credit quality for the nine months ended September 30, 2014, the year ended December 31, 2013 and the nine months ended September 30, 2013 is shown below:


(Dollars in Thousands)	September 30, 2014			December 31, 2013			September 30, 2013
Balance, January 1	$	381,588		$	—		$	—
Additions due to acquisitions		250,161			382,531			—
Loan payments, transfers, etc.		(50,026	)		(943	)		—

Ending balance	$	581,723		$	381,588		$	—

The following is a summary of changes in the accretable discounts of purchased non-covered loans during the nine months ended September 30, 2014, the year ended December 31, 2013 and the nine months ended September 30, 2013:


(Dollars in Thousands)	September 30, 2014			December 31, 2013		September 30, 2013
Balance, January 1	$	26,189		$	—	$	—
Additions due to acquisitions		7,799			26,189		—
Accretion		(5,840	)		—		—
Other activity, net		916			—		—

Ending balance	$	29,064		$	26,189	$	—

The following table presents the assets acquired and liabilities of Coastal assumed as of June 30, 2014 and their fair value estimates:


(Dollars in Thousands)	As Recorded by Coastal			Initial Fair Value Adjustments			Subsequent Fair Value Adjustments			As Recorded by Ameris
Assets
Cash and cash equivalents	$	3,895		$	—		$	—		$	3,895
Federal funds sold and interest-bearing balances		15,923			—			—			15,923
Investment securities		67,266			(500	)(a)		—			66,766
Other investments		975			—			—			975
Mortgage loans held for sale		7,288			—			—			7,288
Loans		296,141			(16,700	)(b)		—			279,441
Less allowance for loan losses		(3,218	)		3,218	(c)		—			—

Loans, net		292,923			(13,482	)		—			279,441
Other real estate owned		14,992			(3,528	)(d)		(2,600	)(g)		8,864
Premises and equipment		11,882			—			—			11,882
Intangible assets		507			4,266	(e)		—			4,773
Other assets		22,710			—			2,624	(h)		25,334

Total assets	$	438,361		$	(13,244	)	$	24		$	425,141

Liabilities
Deposits:
Noninterest-bearing	$	80,012		$	—		$	—		$	80,012
Interest-bearing		289,012			—			—			289,012

Total deposits		369,024			—			—			369,024
Federal funds purchased and securities sold under agreements to repurchase		5,428			—			—			5,428
Other borrowings		22,005			—			—			22,005
Other liabilities		6,192			—			—			6,192
Subordinated deferrable interest debentures		15,465			(6,413	)(f)		—			9,052

Total liabilities		418,114			(6,413	)		—			411,701

Net identifiable assets acquired over (under) liabilities assumed		20,247			(6,831	)		—			13,440
Goodwill		—			23,854			24			23,830

Net assets acquired over (under) liabilities assumed	$	20,247		$	17,023		$	—		$	37,270

Consideration:
Ameris Bancorp common shares issued		1,598,998
Purchase price per share of the Company’s common stock	$	21.56

Company common stock issued		34,474
Cash exchanged for shares		2,796

Fair value of total consideration transferred	$	37,270

Explanation of fair value adjustments

(a)

Adjustment reflects the fair value adjustments of the available for sale portfolio as of the acquisition date.

(b)

Adjustment reflects the fair value adjustments based on the Company’s evaluation of the acquired loan portfolio.

(c)

Adjustment reflects the elimination of Coastal’s allowance for loan losses.

(d)

Adjustment reflects the fair value adjustment based on the Company’s evaluation of the acquired OREO portfolio.

(e)

Adjustment reflects the recording of core deposit intangible on the acquired core deposit accounts.

(f)

Adjustment reflects the fair value adjustment to the subordinated deferrable interest debentures at the acquisition date.

(g)

Adjustment reflects the additional fair value adjustment based on the Company’s evaluation of the acquired OREO portfolio.

(h)