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Business Combination
12 Months Ended
Dec. 31, 2014
Business Combinations [Abstract]  
Business Combination

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 and fourth quarters of 2014, management continued 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. Management continues to evaluate fair value adjustments related to deferred tax assets, pending the filing of the file tax return for Coastal.

 

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)    (231 )(h)    4,542   

Cash value of bank owned life insurance

  7,812      -      -      7,812   

Other assets

  14,898      -      (752 )(i)    14,146   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

$ 438,361    $ (13,244 $ (3,583 $ 421,534   
  

 

 

   

 

 

   

 

 

   

 

 

 

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   (3,583   9,833   

Goodwill

  -      23,854      3,583      27,437   
  

 

 

   

 

 

   

 

 

   

 

 

 

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 final recording of core deposit intangible on the acquired core deposit accounts.

 

  (i)

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

Goodwill of $27.4 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).

 

  Year Ended December 31,  
  2014   2013  

Net interest income and noninterest income

$ 223,281    $ 183,459   

Net income

$ 36,855    $ 21,397   

Net income available to common stockholders

$ 36,569    $ 19,659   

Income per common share available to common stockholders – basic

$ 1.33    $ 0.77   

Income per common share available to common stockholders – diluted

$ 1.31    $ 0.76   

Average number of shares outstanding, basic

  27,573      25,517   

Average number of shares outstanding, diluted

  27,858      25,947   

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. At that time, Prosperity’s wholly owned banking subsidiary, Prosperity Bank (“Prosperity Bank”), was 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. Upon consummation of the acquisition, Prosperity was merged with and into the Company, with Ameris as the surviving entity in the merger. 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, 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. During the fourth quarter of 2014, management adjusted 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 Prosperity assumed as of December 23, 2013 and their fair value estimates:

 

(Dollars in Thousands) As Recorded by
Prosperity
  Initial Fair
Value
Adjustments
  Subsequent
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)    (1,060 )(j)    26,732   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

$ 737,059    $ (26,125 $ (1,060 $ 709,874   
  

 

 

   

 

 

   

 

 

   

 

 

 

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   (1,060   (10,362

Goodwill

  -      34,093      1,060      35,153   
  

 

 

   

 

 

   

 

 

   

 

 

 

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 s at the acquisition date.

 

  (j)

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

Goodwill of $35.2 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 income. The following unaudited pro forma information reflects the Company’s estimated consolidated results of income as if the acquisition had occurred on January 1, 2012, unadjusted for potential cost savings (in thousands).

 

  Year Ended December 31,
Unaudited
 
  2013   2012  

Net interest income and noninterest income

$  187,927    $  199,089   

Net income

$ 19,927    $ 15,604   

Net income available to common shareholders

$ 18,189    $ 12,027   

Net income common share available to common shareholders – basic

$ .73    $ .48   

Net income per common share available to common shareholders – diluted

$ .71    $ .48   

Average number shares outstanding, basic

  25,087      24,985   

Average number shares outstanding, diluted

  25,634      25,026   

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 an $84,000 provision for loan loss expense during the year ended December 31, 2014. There were no adjustments needed during the year ended December 31, 2013.

A rollforward of purchased non-covered loans for the years ended December 31, 2014 and 2013 is shown below:

 

(Dollars in Thousands)

2014   2013  

Balance, January 1

 $ 448,753              $ -        

Charge-offs, net of recoveries

  (84)              -        

Additions due to acquisitions

  279,441               449,696        

Accretion

  9,745               -        

Transfers to purchased non-covered other real estate owned

  (4,160)              -        

Transfer from covered loans due to loss share expiration

  15,475               -        

Payments received

  (74,931)              (943)       
 

 

 

   

 

 

 

Ending balance

 $      674,239              $         448,753        
 

 

 

   

 

 

 

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

 

(Dollars in Thousands)

2014   2013  

Balance, January 1

 $ 26,189              $ -        

Additions due to acquisitions

  7,799               26,189        

Accretion

  (9,745)              -        

Transfers between non-accretable and accretable discounts, net

  1,473               -        
 

 

 

   

 

 

 

Ending balance

 $      25,716              $         26,189