EX-99.3

EX-99.3 5 d11097dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

COMMUNITY & SOUTHERN HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


	Page
Consolidated Balance Sheets at September 30, 2015 and December 31, 2014		1
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2015 and 2014		2
Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2015 and 2014		3
Consolidated Statements of Shareholders’ Equity for the Nine Months Ended September 30, 2015 and 2014		4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014		5
Notes to Consolidated Financial Statements (Unaudited)		6

Community & Southern Holdings, Inc.

Consolidated Balance Sheets (Unaudited)

(In thousands of dollars, except share data)


	September 30, 2015			December 31, 2014
Assets
Cash and due from banks	$	118,456		$	203,956
Investment securities available-for-sale (amortized cost of $512,542 and $441,728, respectively)		517,669			444,883
Investment securities held-to-maturity (market value of $85,223 and $86,460, respectively)		81,825			82,903
Loans held for sale		1,026			1,981
Loans held for investment (including $169,535 and $304,877 covered under FDIC loss share agreements, respectively)		2,872,862			2,422,287
Allowance for loan losses		(45,513	)		(37,910	)

Loans, net of allowance for loan losses		2,827,349			2,384,377
Premises and equipment		59,523			64,617
Other real estate owned (including $4,589 and $12,817 covered under FDIC loss share agreements, respectively)		8,142			14,363
FDIC loss share receivable		18,838			34,464
Goodwill		33,187			23,084
Other intangible assets		9,037			9,738
Bank owned life insurance		84,355			62,424
Other assets		100,129			73,784

Total assets	$	3,859,536		$	3,400,574

Liabilities and Shareholders’ Equity
Liabilities
Deposits
Noninterest-bearing	$	439,316		$	365,084
Interest-bearing		2,695,939			2,470,942

Total deposits		3,135,255			2,836,026
Other borrowings		215,095			78,905
Other liabilities		52,310			50,573

Total liabilities		3,402,660			2,965,504

Shareholders’ equity
Common stock ($0.01 par value; 100,000,000 shares authorized; 36,949,266 shares issued and outstanding, respectively)		369			369
Additional paid-in capital		374,362			372,670
Retained earnings		78,371			59,461
Accumulated other comprehensive income		3,774			2,570

Total shareholders’ equity		456,876			435,070

Total liabilities and shareholders’ equity	$	3,859,536		$	3,400,574

The accompanying notes are an integral part of these consolidated financial statements.

Community & Southern Holdings, Inc.

Consolidated Statements of Income (Unaudited)

(In thousands of dollars)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015		2014
Interest income
Interest and fees on loans	$	36,940	$	35,969		$	107,206	$	104,317
Interest and dividends on investment securities		3,484		3,319			9,874		9,976
Interest on other earning assets		92		86			254		191

Total interest income		40,516		39,374			117,334		114,484
Interest expense
Deposits		4,283		3,435			11,634		9,082
Other borrowings		454		405			1,237		1,229

Total interest expense		4,737		3,840			12,871		10,311

Net interest income		35,779		35,534			104,463		104,173
Provision for credit losses		1,060		4,201			11,406		5,470

Net interest income after provision for credit losses		34,719		31,333			93,057		98,703

Noninterest income
Service charges on deposit accounts		2,998		2,923			8,648		8,325
Securities gains, net		136		132			136		211
Gain on acquisition		—		2,278			—		2,278
Other		2,451		2,008			7,397		5,015

Total noninterest income		5,585		7,341			16,181		15,829

Noninterest expense
Salaries and employee benefits		12,837		11,762			37,612		33,955
Occupancy and equipment expense		2,987		2,919			8,999		8,348
Expense on loans and other real estate owned		1,061		981			2,534		3,027
Other real estate owned and repossession losses, net		585		44			529		1,198
Amortization expense		924		834			2,675		2,167
FDIC loss share receivable valuation adjustments		960		1,001			2,431		3,722
FDIC loss share receivable amortization		1,342		9,935			6,218		36,671
Other		7,376		8,331			20,317		21,189

Total noninterest expense		28,072		35,807			81,315		110,277

Income before income taxes		12,232		2,867			27,923		4,255
Income tax expense (benefit)		4,355		(1,050	)		9,013		(657	)

Net income	$	7,877	$	3,917		$	18,910	$	4,912

The accompanying notes are an integral part of these consolidated financial statements.

Community & Southern Holdings, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands of dollars)


	Three Months Ended September 30						Nine Months Ended September 30
	2015			2014			2015			2014
Net Income	$	7,877		$	3,917		$	18,910		$	4,912

Components of other comprehensive income / (loss):
Unrealized gains / (losses) on available-for-sale investment securities arising during period		2,402			(855	)		1,373			1,941
Reclassification adjustment for net investment securities gains realized in earnings		(90	)		(87	)		(90	)		(139	)
Amortization of unrealized gains on investment securities transferred from available-for-sale to held-to-maturity		(25	)		(27	)		(79	)		(103	)

Total other comprehensive income / (loss)		2,287			(969	)		1,204			1,699

Comprehensive income	$	10,164		$	2,948		$	20,114		$	6,611

The accompanying notes are an integral part of these consolidated financial statements.

Community & Southern Holdings, Inc.

Consolidated Statements of Shareholders’ Equity (Unaudited)

(In thousands of dollars)


	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at December 31, 2013	$	369	$	370,139	$	52,617	$	710	$	423,835
Net income		—		—		4,912		—		4,912
Change in accumulated other comprehensive income		—		—		—		1,699		1,699
Stock-based compensation expense		—		1,938		—		—		1,938

Balance at September 30, 2014	$	369	$	372,077	$	57,529	$	2,409	$	432,384

Balance at December 31, 2014	$	369	$	372,670	$	59,461	$	2,570	$	435,070
Net income		—		—		18,910		—		18,910
Change in accumulated other comprehensive income		—		—		—		1,204		1,204
Stock-based compensation expense		—		1,692		—		—		1,692

Balance at September 30, 2015	$	369	$	374,362	$	78,371	$	3,774	$	456,876

The accompanying notes are an integral part of these consolidated financial statements.

Community & Southern Holdings, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands of dollars)


	Nine Months Ended September 30
	2015			2014
Cash flows from operating activities
Net income	$	18,910		$	4,912
Adjustments to reconcile net income to cash provided by operating activities:
Net amortization/accretion of premiums and discounts		(23,709	)		(33,745	)
Provision for credit losses		11,406			5,470
Other real estate owned and repossession losses, net		529			1,198
Stock-based compensation expense		1,692			1,938
Deferred income tax benefit		(2,174	)		(5,675	)
Depreciation, amortization and accretion		3,163			2,498
Gain on acquisitions		—			(2,278	)
Securities gains, net		(136	)		(211	)
Net change in loans held for sale		955			(769	)
Net change in FDIC loss share receivable		15,626			62,242
Increase in cash surrender value of bank owned life insurance		(1,931	)		(1,464	)
Net change in other assets		(20,883	)		(15,529	)
Net change in other liabilities		1,577			(11,278	)

Net cash provided by operating activities		5,025			7,309

Cash flows from investing activities
Net change in loans held for investment (originations, net of principal repayments)		(339,152	)		(330,356	)
Purchases of investment securities available-for-sale		(152,442	)		(72,896	)
Proceeds from maturities and calls of investment securities available-for-sale		60,168			55,563
Proceeds from sales of investment securities available-for-sale		40,779			72,855
Proceeds from calls and maturities of investment securities held-to-maturity		7,890			2,803
Purchases of investment securities held-to-maturity		(7,069	)		(6,134	)
Purchases of premises and equipment		(2,391	)		(1,085	)
Disposals of premises and equipment		4,040			1,483
Other adjustments in other real estate owned		2,761			3,752
Proceeds from sales of other real estate owned		11,770			28,123
Net cash (paid) acquired from acquisitions		(333	)		74,890
Purchases of bank owned life insurance		(20,000	)		—

Net cash used in investing activities		(393,979	)		(171,002	)

Cash flows from financing activities
Net change in deposits		174,266			106,989
Proceeds from other borrowings		174,384			70,000
Repayment of other borrowings		(45,196	)		(60,000	)

Net cash provided by financing activities		303,454			116,989

Change in cash and due from banks		(85,500	)		(46,704	)
Beginning of period		203,956			217,071

End of period	$	118,456		$	170,367

Supplemental disclosure of cash flow information
Transfers of loans to other real estate owned	$	8,839		$	10,321
Cash paid for interest		12,393			9,778
Cash paid for income taxes		21,902			18,514
Change in unrealized gain on investment securities available-for-sale		1,972			2,772

The accompanying notes are an integral part of these consolidated financial statements.

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

1.	Significant Accounting Policies

Community & Southern Holdings, Inc. (the “Company”), headquartered in Atlanta, Georgia, is a financial holding company that was incorporated under the laws of the State of Delaware on September 18, 2009 to serve as the holding company for Community & Southern Bank (“C&S Bank”). The Company operates two subsidiaries: (1) C&S Bank, a Georgia-state chartered bank that was incorporated on January 29, 2010, which provides traditional credit and depository banking services to its retail and commercial customers through 47 branches in northern and central Georgia, including metro Atlanta, as well as Jacksonville, Florida, and (2) CSB Risk Management, Inc., a captive insurance company established with the specific objective of insuring risks for the Company, its subsidiaries, and a group of unaffiliated member banks. C&S Bank is the parent company of CSB Investments, Inc., a Nevada corporation that owns all of the investment securities of C&S.

Principles of Consolidation and Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information. Accordingly, certain information normally presented for complete consolidated financial statements required by US GAAP has been omitted. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could vary from these estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

These financial statements should be read in conjunction with the 2014 Consolidated Financial Statements of Community & Southern Holdings, Inc. (the “Company”). There have been no significant changes to the Company’s accounting policies as disclosed in the 2014 Consolidated Financial Statements.

Recent Accounting Pronouncements

The following relevant accounting pronouncements, issued during 2015, could have a material effect on the Company’s financial statements. The 2014 Consolidated Financial Statements summarize relevant pronouncements issued prior to 2015.

In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The ASU rescinds the indefinite deferral of previous amendments to ASC Topic 810 for certain entities and amends components of the consolidation analysis under ASC Topic 810, including evaluating limited partnerships and similar legal entities, evaluating fees paid to a decision maker or service provider as a variable interest, the effects of fee arrangements and/or related parties on the primary beneficiary determination and investment fund specific matters. The ASU may be adopted either retrospectively or on a modified retrospective basis and early adoption is permitted. The ASU is effective prospectively for fiscal years beginning on or after December 15, 2015. This ASU is not expected to have a significant impact on the Company’s financial conditions or results of operations.

In September 2015, the FASB issued ASU 2015-16 Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The new guidance requires acquirers to recognize adjustments to provisional amounts (that are identified during the measurement period) in the reporting period in which the

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

adjustment amounts are determined. The new guidance also requires such amounts to be disclosed in the consolidated financial statements. The ASU is effective prospectively for fiscal years beginning on after December 15, 2016. This ASU is not expected to have a significant impact on the Company’s financial conditions or results of operations.

2.	Acquisitions

Community Business Bank

On May 6, 2015, the Company acquired 100% of the outstanding shares of Community Business Bank (“CBB”), a Georgia state-chartered banking institution headquartered in Cumming, Georgia, for cash consideration of $27.9 million. The acquisition provided the Company with an opportunity to expand its banking presence in north metro Georgia.

Upon consummation of the acquisition, CBB was merged with and into the Company, with the Company as the surviving entity in the merger. CBB had a total of two banking locations located in north metro Georgia. The table below presents a summary of the assets acquired and liabilities assumed as a result of the CBB acquisition (dollars in thousands):


	Carrying Value Acquired		Purchase Adjustments			As Recorded by CSB
Assets
Cash and due from banks	$	27,545	$	—		$	27,545
Investment securities		21,403		(20	)		21,383
Loans, net		97,458		(1,938	)		95,520
Premises and equipment		2,521		(2,154	)		367
Intangible assets		—		1,800			1,800
Deferred tax assets		1,383		1,742			3,125
Other assets		821		(11	)		810

Total assets acquired	$	151,131	$	(581	)	$	150,550

Liabilities
Deposits
Noninterest-bearing	$	33,648	$	—		$	33,648
Interest-bearing		91,000		315			91,315

Total deposits		124,648		315			124,963
Other borrowings		7,652		—			7,652
Other liabilities		160		—			160

Total liabilities assumed	$	132,460	$	315		$	132,775

Net identifiable assets acquired						$	17,775
Cash consideration transferred to CBB							27,878

Goodwill						$	10,103

The acquisition of CBB resulted in the recognition of $10.1 million in goodwill, none of which is deductible for tax purposes. The goodwill arose primarily as a result of the expected synergies from combining the operations of CBB with the Company.

The loans acquired had gross contractual amounts receivable of $116.7 million. At the acquisition date, the Company’s current estimate of expected cash flows to be collected was $111.4 million.

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

3.	Investment Securities

The aggregate values of investment securities at September 30, 2015 and December 31, 2014, along with unrealized gains and losses determined on an individual security basis are as follows (dollars in thousands):


	Held-to-Maturity As of September 30, 2015								Available-for-Sale As of September 30, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government	$	—	$	—	$	—	$	—	$	40,093	$	36	$	222	$	39,907
Certificates of deposit		23,249		45		125		23,169		—		—		—		—
FNMA, GNMA and FHLMC mortgage-backed securities		—		—		—		—		250,342		4,076		370		254,048
Asset backed securities		—		—		—		—		16,997		5		279		16,723
Collateralized mortgage obligations		—		—		—		—		157,377		1,832		261		158,948
State, county and municipal		58,576		3,490		12		62,054		8,852		163		6		9,009
Corporate bonds		—		—		—		—		35,555		159		6		35,708
Equity securities		—		—		—		—		3,326		—		—		3,326

Total investment securities	$	81,825	$	3,535	$	137	$	85,223	$	512,542	$	6,271	$	1,144	$	517,669


	Held-to-Maturity As of December 31, 2014								Available-for-Sale As of December 31, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government	$	—	$	—	$	—	$	—	$	39,822	$	89	$	745	$	39,166
Certificates of deposit		17,974		39		98		17,915		—		—		—		—
FNMA, GNMA and FHLMC mortgage-backed securities		—		—		—		—		208,915		3,608		547		211,976
Asset backed securities		—		—		—		—		18,791		3		72		18,722
Collateralized mortgage obligations		—		—		—		—		142,107		1,430		827		142,710
State, county and municipal		64,929		3,643		27		68,545		7,016		99		3		7,112
Corporate bonds		—		—		—		—		21,255		206		86		21,375
Equity securities		—		—		—		—		3,822		—		—		3,822

Total investment securities	$	82,903	$	3,682	$	125	$	86,460	$	441,728	$	5,435	$	2,280	$	444,883

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The following table provides contractual maturity information for investment securities as of September 30, 2015 (dollars in thousands). Callable investment securities are assumed to mature on their earliest call date. Actual maturities may differ from contractual maturity because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Held-to-Maturity As of September 30, 2015				Available-for-Sale As of September 30, 2015
	Cost		Fair Value		Cost		Fair Value
Maturing in
One year or less	$	2,046	$	2,050	$	11,056	$	11,203
One through five years		28,715		29,383		273,520		278,058
Five through ten years		43,490		45,771		205,178		205,577
Over ten years		7,574		8,019		19,462		19,505
Equity securities		—		—		3,326		3,326

Total investment securities	$	81,825	$	85,223	$	512,542	$	517,669

The following table provides information regarding investment securities with unrealized losses as of September 30, 2015 and December 31, 2014 (dollars in thousands):


	As of September 30, 2015
	Less Than 12 Months						More Than 12 Months						Total
	Investment Positions		Fair Value		Unrealized Losses		Investment Positions		Fair Value		Unrealized Losses		Investment Positions		Fair Value		Unrealized Losses
U.S. government		2	$	10,072	$	26		2	$	9,786	$	196		4	$	19,858	$	222
Certificates of deposit		40		8,344		75		11		2,428		50		51		10,772		125
FNMA, GNMA and FHLMC mortgage-backed securities		8		47,481		230		5		18,855		140		13		66,336		370
Asset backed securities		2		7,357		176		2		6,751		103		4		14,108		279
Collateralized mortgage obligations		2		17,512		54		3		10,953		207		5		28,465		261
State, county and municipal		5		3,813		12		1		700		6		6		4,513		18
Corporate bonds		2		13,055		6		—		—		—		2		13,055		6

Total investment securities		61	$	107,634	$	579		24	$	49,473	$	702		85	$	157,107	$	1,281

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)


	As of December 31, 2014
	Less Than 12 Months						More Than 12 Months						Total
	Investment Positions		Fair Value		Unrealized Losses		Investment Positions		Fair Value		Unrealized Losses		Investment Positions		Fair Value		Unrealized Losses
U.S. government		10	$	4,952	$	15		5	$	24,368	$	730		15	$	29,320	$	745
Certificates of deposit		20		4,480		26		19		4,194		72		39		8,674		98
FNMA, GNMA and FHLMC mortgage-backed securities		1		10,167		35		9		36,944		512		10		47,111		547
Asset backed securities		3		10,211		35		1		4,825		37		4		15,036		72
Collateralized mortgage obligations		6		48,245		484		2		9,633		343		8		57,878		827
State, county and municipal		4		1,487		3		3		1,812		27		7		3,299		30
Corporate bonds		1		5,100		82		1		4,997		4		2		10,097		86

Total investment securities		45	$	84,642	$	680		40	$	86,773	$	1,725		85	$	171,415	$	2,405

The Company held certain investment securities having unrealized loss positions. As of September 30, 2015, the Company did not intend to sell these investment securities nor was it more likely than not that the Company would be required to sell these investment securities before their anticipated recovery or maturity. The Company has reviewed its portfolio for OTTI in accordance with the accounting policies outlined in Note 1, “Summary of Significant Accounting Policies and Nature of Business”, to the 2014 Consolidated Financial Statements. Market changes in interest rates and credit spreads will result in temporary unrealized losses as the market price of investment securities fluctuates. As a result, the Company had no other-than-temporary impairment for the nine months ended September 30, 2015 and the year ended December 31, 2014.

The Company had pledged held-to-maturity and available-for-sale investment securities having aggregate fair values of $21.1 million and $270.7 million, respectively at September 30, 2015, and $28.0 million and $304.5 million, respectively at December 31, 2014 to secure public funds on deposit and certain other borrowings, and for other purposes as required by law.

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

4.	Loans Held for Investment

Composition of Loan Portfolio

The Company’s recorded investment in loans outstanding at September 30, 2015 and December 31, 2014, is summarized as follows (dollars in thousands):


	Sept. 30, 2015		Dec. 31, 2014
Commercial loans:
Construction	$	248,434	$	283,528
Commercial real estate		1,115,837		835,163
Commercial & industrial		361,837		335,853

Total commercial loans		1,726,108		1,454,544
Consumer loans:
Residential real estate		163,669		121,912
Automobile		352,692		230,576
Marine and recreational vehicle		364,017		298,740
Other consumer purpose		10,503		11,274

Total consumer loans		890,881		662,502
Purchased credit-impaired loans:
Construction		14,301		16,382
Commercial real estate		145,433		172,733
Commercial & industrial		9,007		10,556
Residential real estate		86,208		104,256
Other consumer purpose		924		1,314

Total purchased credit-impaired loans		255,873		305,241

Loans held for investment	$	2,872,862	$	2,422,287

Loans held for sale	$	1,026	$	1,981

Under a line of credit agreement with the Federal Home Loan Bank of Atlanta (“FHLBA”), at September 30, 2015, the Company had pledged certain loans under a blanket lien as collateral for its FHLBA borrowings. The loans encumbered by the blanket lien included all qualifying 1-4 family first mortgage loans, multi-family first mortgage loans, and commercial real estate loans. Loans pledged as collateral for FHLBA borrowings totaled $2.56 billion and $2.06 billion at September 30, 2015 and December 31, 2014, respectively.

Covered Loans

Included in loans held for investment are loans acquired in Federal Deposit Insurance Corporation (“FDIC”) assisted transactions that are initially covered under loss share agreements (“covered loans”). The Company’s recorded investment in covered loans at September 30, 2015 and December 31, 2014 is summarized as follows (dollars in thousands):


	Sept. 30, 2015		Dec. 31, 2014
Commercial loans	$	1,178	$	2,127
Consumer loans		12,243		15,030
Purchased credit-impaired loans:		156,114		287,720

Total covered loans	$	169,535	$	304,877

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Credit Quality

The Company monitors the credit quality of its commercial loan portfolio using internal credit risk ratings. These credit risk ratings are based upon established regulatory guidance and are assigned upon initial approval of credit to borrowers. Credit risk ratings are updated at least annually after the initial assignment or whenever management becomes aware of information affecting the borrowers’ ability to fulfill their obligations. The Company utilizes the following categories of credit grades to evaluate its commercial loan portfolio:

Pass. Higher quality loans that do not fit any of the other categories described below.

Special Mention. The Company assigns a special mention rating to loans with potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or the Company’s credit position at some future date.

Substandard. The Company assigns a substandard rating to loans that are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans have well-defined weaknesses that jeopardize repayment of the debt. Substandard loans are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not addressed.

Doubtful. The Company assigns a doubtful rating to loans with all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the credit quality of the loan, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.

The following tables show the credit quality indicators associated with the Company’s commercial loan portfolio (excluding purchased credit impaired (“PCI”) loans) as of September 30, 2015 and December 31, 2014 (dollars in thousands):


	As of September 30, 2015
	Construction		Commercial Real Estate		Commercial & Industrial		Total
Pass	$	244,014	$	1,056,130	$	332,062	$	1,632,206
Special Mention		2,902		19,226		8,769		30,897
Substandard		1,518		40,481		10,544		52,543
Doubtful		—		—		10,462		10,462

	$	248,434	$	1,115,837	$	361,837	$	1,726,108


	As of December 31, 2014
	Construction		Commercial Real Estate		Commercial & Industrial		Total
Pass	$	283,011	$	783,889	$	312,756	$	1,379,656
Special Mention		172		36,015		3,540		39,727
Substandard		345		15,259		4,925		20,529
Doubtful		—		—		14,632		14,632

	$	283,528	$	835,163	$	335,853	$	1,454,544

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The Company monitors the credit quality of its consumer portfolio based primarily on payment activity and credit scores. Payment activity is the primary factor considered in determining whether a consumer loan should be classified as nonperforming.

The following tables show the credit quality indicators associated with the Company’s consumer loan portfolio (excluding PCI loans) as of September 30, 2015 and December 31, 2014 (dollars in thousands):


	As of September 30, 2015
	Residential Real Estate		Automobile		Marine & RV		Other Consumer		Total
Performing	$	163,306	$	352,393	$	363,989	$	10,500	$	890,188
Nonperforming		363		299		28		3		693

	$	163,669	$	352,692	$	364,017	$	10,503	$	890,881


	As of December 31, 2014
	Residential Real Estate		Automobile		Marine & RV		Other Consumer		Total
Performing	$	120,511	$	230,283	$	298,671	$	11,264	$	660,729
Nonperforming		1,401		293		69		10		1,773

	$	121,912	$	230,576	$	298,740	$	11,274	$	662,502

The following tables show the credit quality indicators associated with the Company’s commercial PCI loans as of September 30, 2015 and December 31, 2014 (dollars in thousands):


	As of September 30, 2015
	Construction		Commercial Real Estate		Commercial & Industrial		Total
Pass	$	5,337	$	90,718	$	6,949	$	103,004
Special Mention		1,466		16,410		1,671		19,547
Substandard		7,214		36,533		381		44,128
Doubtful		284		1,772		6		2,062

	$	14,301	$	145,433	$	9,007	$	168,741


	As of December 31, 2014
	Construction		Commercial Real Estate		Commercial & Industrial		Total
Pass	$	5,958	$	99,498	$	9,293	$	114,749
Special Mention		1,296		22,071		284		23,651
Substandard		7,865		49,065		972		57,902
Doubtful		1,263		2,099		7		3,369

	$	16,382	$	172,733	$	10,556	$	199,671

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The following tables show the credit quality indicators associated with the Company’s consumer PCI loans as of September 30, 2015 and December 31, 2014 (dollars in thousands):


	As of September 30, 2015
	Residential Real Estate		Other Consumer		Total
Performing	$	82,247	$	909	$	83,156
Nonperforming		3,961		15		3,976

	$	86,208	$	924	$	87,132


	As of December 31, 2014
	Residential Real Estate		Other Consumer		Total
Performing	$	89,984	$	1,287	$	91,271
Nonperforming		14,272		27		14,299

	$	104,256	$	1,314	$	105,570

Delinquency

An aging analysis for the Company’s loan portfolio (excluding PCI loans) at September 30, 2015 and December 31, 2014, is shown in the tables below (dollars in thousands):


	As of September 30, 2015
	Current		30 – 89 Days Past Due		90+ Days Past Due		Total		90+ Days Accruing		Nonaccrual
Commercial loans:
Construction	$	247,054	$	1,380	$	—	$	248,434	$	—	$	590
Commercial real estate		1,113,183		1,476		1,178		1,115,837		—		5,497
Commercial & industrial		350,632		737		10,468		361,837		—		18,910
Consumer loans:
Residential real estate		162,374		932		363		163,669		—		2,229
Automobile		350,184		2,209		299		352,692		11		632
Marine & RV		363,872		117		28		364,017		—		117
Other consumer purpose		10,425		75		3		10,503		—		3

	$	2,597,724	$	6,926	$	12,339	$	2,616,989	$	11	$	27,978


	As of December 31, 2014
	Current		30 – 89 Days Past Due		90+ Days Past Due		Total		90+ Days Accruing		Nonaccrual
Commercial loans:
Construction	$	283,487	$	—	$	41	$	283,528	$	—	$	233
Commercial real estate		830,162		4,663		338		835,163		—		5,507
Commercial & industrial		329,305		333		6,215		335,853		164		14,722
Consumer loans:
Residential real estate		120,464		1,104		344		121,912		113		1,401
Automobile		229,404		1,002		170		230,576		30		293
Marine & RV		298,312		413		15		298,740		—		69
Other consumer purpose		11,138		136		—		11,274		—		10

	$	2,102,272	$	7,651	$	7,123	$	2,117,046	$	307	$	22,235

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

For PCI loans, if the Company has a reasonable expectation about the timing and amount of cash flows expected to be collected, the loans meet the criteria for the recognition of income and are considered to be accruing loans.

An aging analysis for the Company’s PCI loans at September 30, 2015 and December 31, 2014 is shown in the tables below (dollars in thousands):


	As of September 30, 2015
	Current		30 – 89 Days Past Due		90+ Days Past Due		Total		90+ Days Accruing		Nonaccrual
PCI loans:
Construction	$	13,369	$	93	$	839	$	14,301	$	839	$	—
Commercial real estate		135,711		1,397		8,325		145,433		8,325		—
Commercial & industrial		8,844		27		136		9,007		136		—
Residential real estate		80,682		1,565		3,961		86,208		3,961		—
Other consumer purpose		895		13		16		924		16		—

	$	239,501	$	3,095	$	13,277	$	255,873	$	13,277	$	—


	As of December 31, 2014
	Current		30 – 89 Days Past Due		90+ Days Past Due		Total		90+ Days Accruing		Nonaccrual
PCI loans:
Construction	$	14,423	$	147	$	1,812	$	16,382	$	1,812	$	—
Commercial real estate		156,696		2,700		13,337		172,733		13,337		—
Commercial & industrial		9,903		134		519		10,556		519		—
Residential real estate		95,194		4,155		4,907		104,256		4,907		—
Other consumer purpose		1,247		63		4		1,314		4		—

	$	277,463	$	7,199	$	20,579	$	305,241	$	20,579	$	—

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

5.	Allowance for Loan Losses

Activity in the Allowance for Loan Losses (“ALL”) for the nine months ended September 30, 2015 and the year ended December 31, 2014, respectively, is summarized in the tables below (dollars in thousands):


	For the Period Ended September 30, 2015
	Commercial			Consumer			PCI			Total
Beginning Balance	$	23,675		$	9,059		$	5,176		$	37,910
Charge-offs		(1,310	)		(1,723	)		(2,260	)		(5,293	)
Recoveries		505			614			1,821			2,940
Provision¹		4,951			3,416			1,589			9,956

Ending Balance	$	27,821		$	11,366		$	6,326		$	45,513

September 30, 2015 ALL allocated to:
Loans individually evaluated for impairment	$	6,840		$	88		$	—		$	6,928
Loans collectively evaluated for impairment		20,981			11,278			—			32,259
Loans acquired with deteriorated credit quality		—			—			6,326			6,326

Ending Balance	$	27,821		$	11,366		$	6,326		$	45,513

September 30, 2015 recorded investment in loans:
Individually evaluated for impairment	$	24,997		$	2,981		$	—		$	27,978
Collectively evaluated for impairment		1,701,111			887,900			—			2,589,011
Acquired with deteriorated credit quality		—			—			255,873			255,873

Ending Balance	$	1,726,108		$	890,881		$	255,873		$	2,872,862


	For the Year Ended December 31, 2014
	Commercial			Consumer			PCI			Total
Beginning Balance	$	12,186		$	6,608		$	11,741		$	30,535
Charge-offs		(5,160	)		(924	)		(2,557	)		(8,641	)
Recoveries		74			392			3,936			4,402
Provision / (Release)²		16,575			2,983			(7,944	)		11,614

Ending Balance	$	23,675		$	9,059		$	5,176		$	37,910

December 31, 2014 ALL allocated to:
Loans individually evaluated for impairment	$	5,146		$	27		$	—		$	5,173
Loans collectively evaluated for impairment		18,529			9,032			—			27,561
Loans acquired with deteriorated credit quality		—			—			5,176			5,176

Ending Balance	$	23,675		$	9,059		$	5,176		$	37,910

December 31, 2014 recorded investment in loans:
Individually evaluated for impairment	$	20,487		$	2,014		$	—		$	22,501
Collectively evaluated for impairment		1,434,057			660,488			—			2,094,545
Acquired with deteriorated credit quality		—			—			305,241			305,241

Ending Balance	$	1,454,544		$	662,502		$	305,241		$	2,422,287

¹	Does not include $1,450 in provision for unfunded commitments.

²	Does not include ($2,660) in release for unfunded commitments.

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

In addition to the ALL, the Company also estimates probable and reasonably estimable credit losses related to unfunded lending commitments, such as letters of credit and binding unfunded loan commitments. This reserve for unfunded lending commitments totaled $5.0 million and $3.5 million at September 30, 2015 and December 31, 2014, respectively and is included within the other liabilities section of the Consolidated Balance Sheet.

6.	FDIC Loss Share Receivable

The following table shows changes in the carrying value of the FDIC loss share receivable for loss share agreements and the related recorded investment of the covered assets for the nine months ended September 30, 2015 and the year ended December 31, 2014, respectively (dollars in thousands):


	Nine Months Ended September 30, 2015
	FNBGA			ACB			BOE			TPB			FCCB			GTB			FCSB			Total
Carrying value of FDIC loss share receivable, at December 31, 2014	$	5,485		$	14,589		$	1,086		$	1,450		$	1,792		$	3,847		$	6,215		$	34,464
Additions resulting from:
Charge-offs, writedowns, and other losses		599			764			(9	)		(14	)		(16	)		82			235			1,641
Allowable external expenses		282			(14	)		110			148			170			51			145			892
Effect of valuation adjustment on covered assets		559			(103	)		15			21			24			1			2			519
Reductions resulting from:
Amortization		(1,105	)		(1,630	)		(462	)		(624	)		(714	)		(437	)		(1,246	)		(6,218	)
Payments received		(2,485	)		(4,931	)		(445	)		(602	)		(688	)		(860	)		(2,449	)		(12,460	)

Carrying value of FDIC loss share receivable, at September 30, 2015	$	3,335		$	8,675		$	295		$	379		$	568		$	2,684		$	2,902		$	18,838

Covered Assets:
Loans		29,336			29,089			16,093			29,597			14,830			16,720			33,870			169,535
OREO		248			558			1,203			871			1,135			565			455			5,035

Total covered assets	$	29,584		$	29,647		$	17,296		$	30,468		$	15,965		$	17,285		$	34,325		$	174,570


	Year Ended December 31, 2014
	FNBGA			ACB			BOE			TPB			FCCB			GTB			FCSB			Total
Carrying value of FDIC loss share receivable, at December 31, 2013	$	30,922		$	40,283		$	6,052		$	2,449		$	12,615		$	5,752		$	10,194		$	108,267
Additions resulting from:
Charge-offs, writedowns, and other losses		(605	)		1,408			225			305			349			14			40			1,736
Allowable external expenses		1,120			1,102			(36	)		(50	)		(56	)		119			338			2,537
Reductions resulting from:
Effect of valuation adjustment on covered assets		(2,508	)		(2,115	)		(604	)		(818	)		(935	)		(204	)		(582	)		(7,766	)
Amortization		(20,803	)		(12,481	)		(1,440	)		1,844			(7,056	)		(745	)		(2,125	)		(42,806	)
Payments received		(2,641	)		(13,608	)		(3,111	)		(2,280	)		(3,125	)		(1,089	)		(1,650	)		(27,504	)

Carrying value of FDIC loss share receivable, at December 31, 2014	$	5,485		$	14,589		$	1,086		$	1,450		$	1,792		$	3,847		$	6,215		$	34,464

Covered Assets:
Loans		93,916			73,938			19,207			37,542			20,119			20,029			40,126			304,877
OREO		3,109			4,366			1,272			1,558			935			—			1,577			12,817

Total covered assets	$	97,025		$	78,304		$	20,479		$	39,100		$	21,054		$	20,029		$	41,703		$	317,694

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

7.	Deposits

Deposits at September 30, 2015 and December 31, 2014, are summarized as follows (dollars in thousands):


	September 30, 2015		December 31, 2014
Noninterest-bearing demand	$	439,316	$	365,084
Interest-bearing demand		456,260		426,406
Money market		676,602		687,025
Savings		99,776		91,329
Time		1,463,301		1,266,182

Total deposits	$	3,135,255	$	2,836,026

Time deposits with a minimum denomination of $100 thousand totaled $937.8 million and $750.9 million at September 30, 2015 and December 31, 2014, respectively.

At September 30, 2015, the scheduled maturities of time deposits were (dollars in thousands):


2015	$	347,328
2016		754,645
2017		134,352
2018		49,956
2019 and thereafter		177,020

Total time deposits	$	1,463,301

8.	Other Borrowings

Other borrowings at September 30, 2015 and December 31, 2014, are as follows (dollars in thousands):


	September 30, 2015		December 31, 2014
Advances payable to the FHLBA with contractual rates ranging from 0.20 percent to 4.39 percent and maturities ranging from October 2015 to May 2019 (inclusive of unamortized premium of $1,256 and $1,905 for September 30, 2015 and December 31, 2014, respectively)	$	215,095	$	78,905

Total other borrowings	$	215,095	$	78,905

9.	Fair Values Measurements

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, US GAAP establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Level 1 and 2 of the hierarchy) and reporting entity’s own assumptions developed based on the best information available in the circumstances (unobservable inputs classified within Level 3 of the hierarchy).

Fair Value Hierarchy

Level 1

Valuation is based on inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Level 2

Valuation is based on inputs, other than quoted prices included within Level 1, that are observable for the asset and liability, either directly or indirectly, such as interest rates, yield curves observable at commonly quoted intervals, and other market-corroborated inputs.

Level 3

Valuation inputs are unobservable inputs for the asset or liability, which shall be used to measure fair value to the extent that observable inputs are not available. The inputs shall reflect the Company’s own assessment regarding assumptions that market participants would use in pricing the asset or liability.

Fair value estimates are made at a specific point in time based upon relevant market information and information about each asset and liability. Where information regarding the fair value of an asset or liability is available, those values are used, as is the case with investment securities and residential mortgage loans. In these cases, an open market exists in which these assets are actively traded.

Because no market exists for many assets and liabilities, fair value estimates are based upon judgments regarding future expected loss experience, current economic conditions, risk characteristics and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. For those assets or liabilities with a fixed interest rate, an analysis of the related cash flows was the basis for estimating fair values. The expected cash flows were then discounted to the valuation date using an appropriate discount rate. The discount rates used represent the rates under which similar transactions would be currently negotiated. For assets or liabilities with fixed and variable rates, fair value estimates also consider the impact of liquidity discounts appropriate as of the measurement date.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The Company evaluates fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s valuation process. There were no significant transfers between levels during the nine months ended September 30, 2015 or year ended December 31, 2014.

Fair Value of Financial Instruments Measured on a Recurring Basis

The following methods and assumptions were used by the Company in estimating the fair value of its financial assets on a recurring basis:

Investment Securities

Investment securities classified as available-for-sale are recorded at fair value on a recurring basis. The Company’s investment portfolio primarily consists of U.S. government agency mortgage-backed securities, non-agency mortgage-backed securities, U.S. government securities, corporate bonds and municipal securities. The fair value of investment securities classified as available-for-sale are generally determined using widely accepted valuation techniques including matrix pricing and broker-quote-based applications. Inputs may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

relevant items. The Company reviews the prices supplied by the independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. From time to time, the Company validates the appropriateness of the valuations provided by the independent pricing service to prices obtained from an additional third party or prices derived using internal models.

The following tables summarize the financial assets and liabilities measured at fair value on a recurring basis at September 30, 2015 and December 31, 2014 (dollars in thousands):


	As of September 30, 2015
Description	Fair Value		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) Inputs		Quoted Prices for Similar Assets and Liabilities (Level 2) Inputs		Significant Unobservable Inputs (Level 3) Inputs
Investment securities available-for-sale
U.S. government	$	39,907	$	—	$	39,907	$	—
FNMA, GNMA, FHLMC mortgage-backed securities		254,048		— —		254,048		—
Asset backed securities		16,723		—		16,723		—
Collateralized mortgage obligations		158,948		—		158,948		—
State, county and municipal		9,009		—		9,009		—
Corporate bonds		35,708		—		35,708		—
Equity securities		3,326		—		—		3,326

	$	517,669	$	—	$	514,343	$	3,326


	As of December 31, 2014
Description	Fair Value		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) Inputs		Quoted Prices for Similar Assets and Liabilities (Level 2) Inputs		Significant Unobservable Inputs (Level 3) Inputs
Investment securities available-for-sale
U.S. government	$	39,166	$	—	$	39,166	$	—
FNMA, GNMA, FHLMC mortgage-backed securities		211,976		— —		211,976		— —
Asset backed securities		18,722		—		18,722		—
Collateralized mortgage obligations		142,710		—		142,710		—
State, county and municipal		7,112		—		7,112		—
Corporate bonds		21,375		—		21,375		—
Equity securities		3,822		—		—		3,822

	$	444,883	$	—	$	441,061	$	3,822

During 2015, the Company purchased level 3 investment securities of $736 thousand, received settlements of $1.2 million and recognized no gains or losses in earnings or other comprehensive income.

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Fair Value of Financial Instruments Measured on a Nonrecurring Basis

The following methods and assumptions were used by the Company in estimating the fair value of its financial assets on a nonrecurring basis:

Impaired Loans

Loans are considered impaired when it is determined to be probable that all amounts due under the contractual terms of the loans will not be collected when due. Loans considered individually impaired are evaluated and a specific allowance is established if required based on the underlying collateral value of the impaired loans or the estimated discounted cash flows for such loans. A specific allowance is required if the fair value of the expected repayments or the fair value of the collateral is less than the recorded investment in the loan. The Company records impaired loans as nonrecurring level 3.

Loans Held for Sale

Level 1 loans held for sale consist of conforming residential mortgage loans accounted for at lower of cost or market. Fair value is determined based upon pricing assigned on a loan-by-loan basis, at the time a loan is locked with the borrower, through correspondent relationships that the Company maintains in order to sell loans held for sale.

OREO

The fair value of OREO is determined when the asset is transferred to foreclosed assets. The assets are carried at the lower of the carrying value or fair value less estimated costs to sell. Fair value is based upon appraised values of the collateral or management’s estimation of the value of the collateral. Management requires a new appraisal at the time of foreclosure or repossession of the underlying collateral. Updated appraisals are obtained on at least an annual basis on all OREO and are considered to contain Level 3 inputs. Management has also determined, in some cases, that fair value of collateral is further impaired based upon real estate market trends and declining foreclosed property pricing. Therefore, all OREO is recorded as a nonrecurring Level 3 hierarchy.

For assets and liabilities carried at fair value on a nonrecurring basis, the following table provides fair value information as of September 30, 2015 and December 31, 2014 (dollars in thousands):


	As of September 30, 2015
Description	Net Carrying Value		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) Inputs		Quoted Prices for Similar Assets and Liabilities (Level 2) Inputs		Significant Unobservable Inputs (Level 3) Inputs
Impaired loans	$	28,752	$	—	$	—	$	28,752
Loans held for sale		1,026		1,026		—		—
OREO		8,142		—		—		8,142

	As of December 31, 2014
Description	Net Carrying Value		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) Inputs		Quoted Prices for Similar Assets and Liabilities (Level 2) Inputs		Significant Unobservable Inputs (Level 3) Inputs
Impaired loans	$	22,635	$	—	$	—	$	22,635
Loans held for sale		1,981		1,981		—		—
OREO		14,363		—		—		14,363

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at September 30, 2015 and December 31, 2014 (dollars in thousands):


As of September 30, 2015
Financial Instrument	Net Carrying Value		Valuation Technique	Unobservable Input	Range of Inputs
			1) Non-Collateral	1) a) Loss given default	1) a) 0% – 64%
			Dependent: Discounted	b) Probability of default	b) 100%
Impaired loans	$	28,752	cash flow analysis	c) Discount rate	c) 4% – 9%
			2) Collateral Dependent: Third party appraisal	2) Management discount for property type, recent market volatility, lien position, and costs to sell.	2) 0% – 95%

OREO	$	8,142	Third party appraisal	Management discount for property type, recent market volatility and time on the market	0% – 40%

As of December 31, 2014
Financial Instrument	Net Carrying Value		Valuation Technique	Unobservable Input	Range of Inputs
			1) Non-Collateral	1) a) Loss given default	1) a) 0% – 73%
			Dependent: Discounted	b) Probability of default	b) 35% – 100%
Impaired loans	$	22,635	cash flow analysis	c) Discount rate	c) 3% – 8%
			2) Collateral Dependent: Third party appraisal	2) Management discount for property type, recent market volatility, lien position, and costs to sell.	2) 0% – 83%

OREO	$	14,363	Third party appraisal	Management discount for property type, recent market volatility and time on the market	0% – 40%

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Fair Value of Financial Instruments

The following table includes the estimated fair value of the Company’s financial assets and financial liabilities (dollars in thousands). The methodologies for estimating the fair value of financial assets and financial liabilities measured on a recurring and nonrecurring basis are discussed above. The methodologies for estimating the fair value for other financial assets and financial liabilities are discussed below. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data in order to develop the estimates of fair value. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation techniques may have a material effect on the estimated fair value amounts at September 30, 2015 and December 31, 2014.


	September 30, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
Cash and due from banks	$	118,456	$	118,456	$	203,956	$	203,956
Investment securities available-for-sale		517,669		517,669		444,883		444,883
Investment securities held-to-maturity		81,825		85,223		82,903		86,460
Loans held for sale		1,026		1,053		1,981		2,035
Loans held for investment, net		2,827,349		2,897,729		2,384,377		2,443,694
FDIC loss share receivable		18,838		18,838		34,464		34,464
Bank owned life insurance (“BOLI”)		84,355		84,355		62,424		62,424
FHLBA stock		12,283		12,283		6,429		6,429
Deposits		3,135,255		3,113,723		2,836,026		2,808,630
Other borrowings		215,095		216,195		78,905		80,047

Cash and Due From Banks

The carrying amount approximates fair value for these instruments.

Investment Securities

The fair value of investment securities are generally determined using widely accepted valuation techniques including matrix pricing and broker-quote-based applications.

Loans Held For Sale

Loans held for sale are carried at the lower of cost or fair value. These loans currently consist of one-to-four family residential real estate loans originated for sale to qualified third parties. Fair value is based upon the contractual price to be received from these third parties, which may be different than cost.

Loans Held for Investment

Fair values are estimated for portfolios of loans with similar financial characteristics if collateral-dependent. Loans are segregated by type. The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect observable market information incorporating the credit, liquidity, yield and other risks inherent in the loan. The estimate of maturity is based upon the Company’s historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of the current economic and lending conditions.

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Fair value for significant non-performing loans is generally based upon recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information.

Fair values for PCI loans are valued based upon a discounted expected cash flow methodology that considers various factors including the type of loan and related collateral, credit quality, fixed or variable interest rate, term of loan and whether or not the loan was amortizing and a discount rate reflecting the Company’s assessment of risk inherent in the cash flow estimates. PCI loans are grouped together according to common risk characteristics and are evaluated in aggregated pools when applying various valuation techniques. The Company estimated the gross cash flows expected to be collected on these loans based upon the expected remaining life of the underlying loans, which includes the effects of estimated prepayments. The carrying amounts of PCI loans approximate fair value.

FDIC Loss Share Receivable

The fair value of the FDIC loss share receivable is estimated using projected cash flows related to the loss sharing agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. The cash flows are discounted to reflect the uncertainty of the time of receipt of the loss-sharing reimbursements from the FDIC. The carrying amount of the FDIC loss share receivable approximates fair value.

BOLI

The carrying amount approximates fair value for these instruments.

FHLBA Stock

FHLBA stock is carried at its original cost basis, as cost approximates fair value and there is no ready market for such investments.

Deposits

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings and money market and checking accounts, is based on the discounted value of estimated cash flows. The fair value of time deposits is based upon the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Other Borrowings

The fair value of the Company’s FHLBA advances is estimated based upon the discounted value of contractual cash flows. The fair value of investment securities sold under agreements to repurchase approximates the carrying amount because of the short maturity of these borrowings. The discount rate is estimated using rates quoted for the same or similar issues or the current rates offered to the Company for debt of the same remaining maturities.

Commitments and Contingencies

For off-balance sheets commitments and contingencies, carrying amounts are reasonable estimates of the fair values for such financial instruments. Carrying amounts include unamortized fee income and, in some cases, reserves for any credit losses from those financial instruments. These amounts are not material to the Company’s financial position.

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

10.

Other noninterest expense

Other noninterest expense for the three months and nine months ended September 30, 2015 and 2014 included the following (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015			2014
Technology and data processing	$	2,743	$	2,687	$	8,650		$	6,606
Legal and professional services		1,177		1,759		3,958			3,847
Printing, posage and supplies		450		433		1,201			1,201
Advertising		614		569		1,440			1,121
FDIC deposit insurance expense		662		687		1,881			1,896
Clawback (income) expense		271		632		(747	)		2,338
Other		1,459		1,564		3,934			4,180

Total other noninterest expense	$	7,376	$	8,331	$	20,317		$	21,189

11.

Accumulated Other Comprehensive Income (AOCI)

In addition to presenting the Consolidated Statements of Comprehensive Income herein, the following table shows the tax effects allocated to each component of AOCI for the three and nine month periods ending September 30, 2015 and September 30, 2014, respectively (dollars in thousands):


	Three Months Ended
	September 30, 2015									September 30, 2014
	Before -Tax Amount			Tax			Net-of-Tax Amount			Before -Tax Amount			Tax			Net-of-Tax Amount
AOCI, beginning balance	$	2,321		$	(834	)	$	1,487		$	5,134		$	(1,756	)	$	3,378
Unrealized gains / (losses) on securities:
Net unrealized gains / (losses) arising during the period		3,639			(1,237	)		2,402			(1,295	)		440			(855	)
Less: reclassification adjustment for gains included in net income		(136	)		46			(90	)		(132	)		45			(87	)
Amortization of unrealized gains on investment securities transferred from available-for-sale to held-to-maturity		(38	)		13			(25	)		(41	)		14			(27	)

AOCI, ending balance	$	5,786		$	(2,012	)	$	3,774		$	3,666		$	(1,257	)	$	2,409

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)


	Nine Months Ended
	September 30, 2015									September 30, 2014
	Before-Tax Amount			Tax			Net-of-Tax Amount			Before-Tax Amount			Tax			Net-of-Tax Amount
AOCI, beginning balance	$	3,961		$	(1,391	)	$	2,570		$	1,094		$	(384	)	$	710
Unrealized gains / (losses) on securities:
Net unrealized gains / (losses) arising during the period		2,081			(708	)		1,373			2,939			(998	)		1,941
Less: reclassification adjustment for gains included in net income		(136	)		46			(90	)		(211	)		72			(139	)
Amortization of unrealized gains on investment securities transferred from available-for-sale to held-to-maturity		(120	)		41			(79	)		(156	)		53			(103	)

AOCI, ending balance	$	5,786		$	(2,012	)	$	3,774		$	3,666		$	(1,257	)	$	2,409

Reclassifications out of AOCI consisted of the following (dollars in thousands)::


	Three Months Ended September 30						Affected line item in the Consolidated Financial Statements
Details about components of AOCI	2015			2014			Affected line item in the Consolidated Financial Statements
Realized gains on AFS securities:	$	(136	)	$	(132	)	Securities gains
		46			45		Income tax expense

	$	(90	)	$	(87	)

Amortization of unrealized gains on investment securities transferred from available-for-sale to held-to-maturity:	$	(38	)	$	(41	)	Investment securities held-to-maturity
		13			14		Income tax expense

	$	(25	)	$	(27	)


	Nine Months Ended September 30						Affected line item in the Consolidated Financial Statements
Details about components of AOCI	2015			2014			Affected line item in the Consolidated Financial Statements
Realized gains on AFS securities:	$	(136	)	$	(211	)	Securities gains
		46			72		Income tax expense

	$	(90	)	$	(139	)

Amortization of unrealized gains on investment securities transferred from available-for-sale to held-to-maturity:	$	(120	)	$	(156	)	Investment securities held-to-maturity
		41			53		Income tax expense

	$	(79	)	$	(103	)

12.

Income Taxes

For the three months ended September 30, 2015 and 2014, income tax expense (benefit) was $4,355 and $(1,050) representing effective tax rates of 35.6% and (36.6)%, respectively. For the nine months ended September 30, 2015 and 2014, income tax expense (benefit) was $9,013 and $(657), representing effective tax rates of 32.3%

Community & Southern Holdings, Inc.

Notes to Consolidated Financial Statements (Unaudited)

and (15.4)%, respectively. The higher effective tax rates for the three months and nine months ended September 30, 2015, compared to the three months and nine months ended September 30, 2014, were primarily due to higher pre-tax income.

The provision for income taxes includes both federal and state income taxes and differs from the provision using statutory rates primarily due to favorable permanent tax items such as income from nontaxable loans and investments and tax exempt income on Bank owned life insurance. The Company calculated provision for income taxes for the three and nine months ended September 30, 2015 by applying the estimated annual effective tax rate to year-to-date pretax income, and calculated provision for income taxes for the three and nine months ended September 30, 2014 by using the actual effective tax rate.

13.

Subsequent Events

Management has evaluated the effects of subsequent events through December 2, 2015 and has determined that the following events require disclosure:

Certus Bank

On October 9, 2015, the Company successfully completed the acquisition of certain loans and deposits related to fourteen Certus Bank branches throughout Georgia and Florida. The purchase included $575.2 million in deposits and $181.2 million in loans. The Company is currently in the process of calculating purchase accounting adjustments associated with this acquisition.

Acquisition by Bank of the Ozarks, Inc.

On October 19, 2015, the Company entered into a definitive merger agreement with Bank of the Ozarks, Inc. (“OZRK”). The Company and OZRK jointly announced the signing of a definitive agreement and plan of merger (“Agreement”) whereby OZRK will acquire the Company and its wholly owned bank subsidiary, Community & Southern Bank (“CSB”), in an all-stock transaction valued at approximately $799.6 million, or approximately $20.50 per fully diluted Company share, subject to potential adjustments as described in the Agreement.

Under the terms of the agreement, which has been approved by the boards of directors of both companies, each holder of outstanding shares of common stock of the Company will receive shares of common stock of OZRK. The number of OZRK shares to be issued will be determined based on the fifteen day volume weighted average stock price of OZRK’s common stock as of the second business day prior to the closing date, subject to a minimum and maximum price of $34.10 and $56.84, respectively.

Upon the closing of the transaction, the Company will merge into OZRK and CSB will merge into OZRK’s wholly-owned bank subsidiary, Bank of the Ozarks. Completion of the transaction is subject to certain closing conditions, including customary regulatory and shareholder approvals. The transaction is expected to close during the first quarter of 2016.

Legal Contingencies

C&S Bank recorded a litigation loss of $1.0 million in December of 2015 related to an acquired loan participation. In this legal matter, participant bank on a defaulted loan filed suit against C&S Bank for full loan recovery liquidation proceeds based on a negotiated contract with C&S Bank’s predecessor in interest. The judgment against C&S Bank was upheld on appeal; C&S Bank continues to evaluate the merits of additional appeal. Amounts paid to satisfy the judgment, to the extent the matter is not appealed, will be offset by proceeds from disposition of underlying collateral as well as with any amounts collected as a result of final judgment obtained by C&S Bank against underlying borrowers and guarantors on the subject loan.