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.

At September 30, 2014, the Company’s FDIC loss-sharing receivable totaled $38.2 million, which is comprised of $21.5 million in indemnification asset (for reimbursements associated with anticipated losses in future quarters) and $16.7 million in current charge-offs and expenses already incurred but not yet submitted for reimbursement.

The following table summarizes components of all covered assets at September 30, 2014, December 31, 2013 and September 30, 2013 and their origin:


	Covered loans		Less: Fair value adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC loss-share receivable
As of September 30, 2014:
AUB	$	8,902	$	—	$	8.902	$	666	$	—	$	666	$	9,568	$	882
USB		13,576		351		13,225		2,134		48		2,086		15,311		(439	)
SCB		28,534		789		27,745		2,665		308		2,357		30,102		1,855
FBJ		22,421		2,346		20,075		1,578		90		1,488		21,563		2,138
DBT		75,683		8,531		67,152		9,804		1,024		8,780		75,932		9,337
TBC		25,577		1,465		24,112		3,552		394		3,158		27,270		2,542
HTB		54,317		5,761		48,556		3,477		1,239		2,238		50,794		7,152
OGB		48,889		4,160		44,729		2,244		39		2,205		46,934		5,803
CBG		67,273		8,180		59,093		7,195		1,290		5,905		64,998		8,963

Total	$	345,172	$	31,583	$	313,589	$	33,315	$	4,432	$	28,883	$	342,472	$	38,233


	Covered loans		Less: Fair value adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC loss-share receivable
As of December 31, 2013:
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		2,354		30,236		4,844		745		4,099		34,335		3,721
HTB		67,126		7,359		59,767		6,374		2,304		4,070		63,837		9,325
OGB		58,512		5,067		53,445		7,506		2,984		4,522		57,967		9,645
CBG		85,118		13,615		71,503		7,610		1,933		5,677		77,180		14,821

Total	$	443,322	$	53,085	$	390,237	$	55,827	$	9,934	$	45,893	$	436,130	$	65,441


	Covered loans		Less: Fair value adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC loss-share receivable
As of September 30, 2013:
AUB	$	19,336	$	915	$	18,421	$	3,338	$	3	$	3,335	$	21,756	$	3,704
USB		21,168		1,665		19,503		3,066		139		2,927		22,430		2,796
SCB		35,555		1,902		33,653		5,348		429		4,919		38,572		4,020
FBJ		27,222		3,965		23,257		1,582		170		1,412		24,669		4,990
DBT		116,685		21,739		94,946		19,720		1,639		18,081		113,027		23,955
TBC		35,588		2,573		33,015		5,912		843		5,069		38,084		4,315
HTB		70,156		8,273		61,883		6,998		2,445		4,553		66,436		11,065
OGB		63,794		6,766		57,028		9,921		3,918		6,003		63,031		9,458
CBG		92,755		16,812		75,943		8,299		2,046		6,253		82,196		17,460

Total	$	482,259	$	64,610	$	417,649	$	64,184	$	11,632	$	52,552	$	470,201	$	81,763

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. Amounts reflected in the Company’s statement of earnings are net of indemnification provided under loss share agreements with the FDIC. The adjustments are performed on a loan-by-loan basis and have resulted in the following adjustments for the nine months ended September 30, 2014, the year ended December 31, 2013 and the nine months ended September 30, 2013:


Total Amounts	September 30, 2014		December 31, 2013		September 30, 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 to be accreted into income over remaining term of the loan)	$	16,070	$	51,003	$	50,703
Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		3,425		7,695		6,305

Amounts reflected in the Company’s Statement of Operations	September 30, 2014		December 31, 2013		September 30, 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 to be accreted into income over remaining term of the loan)	$	3,214	$	10,201	$	10,141
Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)		685		1,539		1,261

A rollforward of 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	$	217,047		$	282,737		$	282,737
Charge-offs, net of recoveries		(8,099	)		(35,306	)		(30,371	)
Additions due to acquisitions		—			—			—
Other (loan payments, transfers, etc.)		(37,487	)		(30,384	)		(20,777	)

Ending balance	$	171,461		$	217,047		$	231,589

A rollforward of 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	$	173,190		$	228,602		$	228,602
Additions due to acquisitions		—			—			—
Loan payments, transfers, etc.		(31,062	)		(55,412	)		(42,316	)

Ending balance	$	142,128		$	173,190		$	186,286

The following is a summary of changes in the accretable discounts of 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	$	25,493		$	16,698		$	16,698
Additions due to acquisitions		—			—			—
Accretion		(20,822	)		(42,208	)		(36,552	)
Other activity, net		16,070			51,003			50,703

Ending balance	$	20,741		$	25,493		$	30,849

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. As of September 30, 2014, December 31, 2013 and September 30, 2013, the Company has recorded a clawback liability of $5.9 million, $5.0 million and $5.0 million, respectively, which represents the obligation of the Company to reimburse the FDIC should actual losses be less than certain thresholds established in each loss share agreement. Changes in the FDIC shared-loss receivable for the nine months ended September 30, 2014, for the year ended December 31, 2013 and for the nine months ended September 30, 2013 are as follows:


(Dollars in Thousands)	September 30, 2014			December 31, 2013			September 30, 2013
Balance, January 1	$	65,441		$	159,724		$	159,724
Indemnification asset recorded in acquisitions		—			—			—
Payments received from FDIC		(18,509	)		(68,822	)		(58,240	)
Effect of change in expected cash flows on covered assets		(8,699	)		(25,461	)		(19,721	)

Ending balance	$	38,233		$	65,441		$	81,763