NOTE 2. ASSETS ACQUIRED IN FDIC-ASSISTED ACQUISITIONS

From October 2009 through July 2012, the Company has participated in ten FDIC-assisted acquisitions (the “acquisitions”) whereby the Company purchased certain failed institutions out of the FDIC’s receivership. These institutions include:


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”)	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 following table summarizes the total assets purchased and liabilities assumed, as well as key elements of the purchase and assumption agreements between the FDIC and the Bank (in thousands):


	AUB			USB			SCB			FBJ			TBC			DBT			HTB			OGB			CBG			MBT

Acquisition date		10/23/09			11/06/09			05/14/10			10/22/10			11/12/10			11/12/10			07/15/11			07/15/11			02/24/12			07/06/12

Assets, fair value	$	120,994		$	169,172		$	84,342		$	77,709		$	132,036		$	448,311		$	197,463		$	166,052		$	293,189		$	156,867
Deposits, fair value	$	100,470		$	141,094		$	75,530		$	71,869		$	132,939		$	386,958		$	175,887		$	136,101		$	261,036		$	156,699
Other borrowings	$	7,802		$	1,504		$	-		$	2,613		$	-		$	54,418		$	-		$	21,107		$	10,334		$	-

Discount bid	$	19,645		$	32,615		$	14,395		$	4,810		$	3,973		$	45,002		$	33,500		$	22,500		$	33,900		$	-
Deposit premium	$	262		$	228		$	92		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Cash received/(paid)	$	17,100		$	24,200		$	(35,657	)	$	8,117		$	(10,251	)	$	(149,893	)	$	30,228		$	(5,658	)	$	31,900		$	138,740
Gain/(Goodwill)	$	12,445		$	26,121		$	8,208		$	2,385		$	(956	)	$	4,211		$	18,922		$	7,945		$	20,037		$	-

FDIC loss sharing – Tranche 1
Cumulative Loss threshold	$	38,000		$	46,000			All losses			All losses			All losses		$	131,772			All losses			All losses			All losses			n/a
Percentage retained by FDIC		80	%		80	%		80	%		80	%		80	%		80	%		80	%		80	%		80	%		n/a

FDIC loss sharing – Tranche 2
Cumulative Loss threshold	$	>38,000		$	>46,000			n/a			n/a			n/a		$	193,068			n/a			n/a			n/a			n/a
Percentage retained by FDIC		95	%		95	%		n/a			n/a			n/a			30	%		n/a			n/a			n/a			n/a

FDIC loss sharing – Tranche 3
Cumulative Loss threshold		n/a			n/a			n/a			n/a			n/a		$	>193,068			n/a			n/a			n/a			n/a
Percentage retained by FDIC		n/a			n/a			n/a			n/a			n/a			80	%		n/a			n/a			n/a			n/a

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisitions (in thousands):

	AUB			USB			SCB			FBJ			TBC			DBT			HTB			OGB			CBG			MBT

Assets acquired
Cash	$	26,452		$	41,490		$	(33,093	)	$	10,669		$	4,862		$	(58,158	)	$	36,432		$	1,585		$	65,050		$	155,466
Investment securities		10,242			8,335			10,814			7,343			7,060			105,562			14,770			28,891			39,920			-
Federal funds sold		-			2,605			12,661			5,690			-			-			-			5,070			-			-
Loans		56,482			83,646			68,751			40,454			92,568			261,340			84,732			74,843			124,782			1,218
Foreclosed property		2,165			8,069			2,012			1,816			3,472			22,026			10,272			7,242			6,177			-
FDIC loss share asset		24,200			21,640			22,400			11,307			22,807			112,404			49,485			45,488			52,654			-
Core deposit intangible		187			386			185			132			175			1,180			-			-			1,149			-
Other assets		1,266			3,001			612			298			1,092			3,957			1,772			2,933			3,457			183


Total assets acquired	$	120,994		$	169,172		$	84,342		$	77,709		$	132,036		$	448,311		$	197,463		$	166,052		$	293,189		$	156,867


Liabilities assumed
Deposits	$	100,470		$	141,094		$	75,530		$	71,869		$	132,939		$	386,958		$	175,887		$	136,101		$	261,036		$	156,699
FHLB advances		7,802			1,504			-			2,613			-			2,724			-			21,107			10,334			-
Other liabilities		277			453			604			842			53			54,418			2,654			899			1,782			168

Total liabilities assumed	$	108,549		$	143,051		$	76,134		$	75,324		$	132,992		$	444,100		$	178,541		$	158,107		$	273,152		$	156,867


Net assets acquired	$	12,445		$	26,121		$	8,208		$	2,385		$	(956	)	$	4,211		$	18,922		$	7,945		$	20,037		$	-

The results of operations of HTB, OGB, CBG and MBT 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 acquisitions had occurred on December 31, 2011 and 2010, unadjusted for potential cost savings (in thousands).


	Year Ended December 31, Unaudited
	2012			2011
Net interest income and noninterest income	$	176,262		$	187,826
Net loss	$	(10,233	)	$	(17,744	)
Net loss available to common shareholders	$	(13,810	)	$	(20,985	)
Loss per common share available to common shareholders – basic and diluted	$	(0.58	)	$	(0.90	)

Average number shares outstanding, basic		23,816			23,446
Average number shares outstanding, diluted		23,857			23,538

The CBG acquisition resulted in a gain of $20.0 million, before tax, which is included in the Company’s December 31, 2012 consolidated statement of operations. Due to the difference in tax bases of the assets acquired and liabilities assumed, the Bank recorded a deferred tax liability of $7.0 million, resulting in an after-tax gain of $13.0 million during 2012. The MBT acquisition did not result in a gain or loss during 2012. The HTB and OGB acquisitions resulted in a gain of $26.9 million, before tax, which is included in the Company’s December 31, 2011 consolidated statement of operations. Due to the difference in tax bases of the assets acquired and liabilities assumed, the Bank recorded a deferred tax liability of $9.4 million, resulting in an after-tax gain of $17.5 million during 2011. The SCB, FBJ and DBT acquisitions resulted in a gain of $14.8 million, before tax, which is included in the Company’s December 31, 2010 consolidated statement of operations. Due to the difference in tax bases of the assets acquired and liabilities assumed, the Bank recorded a deferred tax liability of $5.2 million, resulting in an after-tax gain of $9.6 million during 2010. Based upon the acquisition date fair values of the net assets acquired, $956,000 of goodwill was recorded on the TBC acquisition in 2010.

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 increase, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loan’s remaining life. If the expected cash flows decrease, the Company records a provision for loan loss in its consolidated statement of operations.

Loans acquired for which it was probable at acquisition that all contractually required payments would not be collected are as follows.

The covered loans with deterioration of credit quality on the respective acquisition dates are presented in the following table:


	AUB		USB		SCB		FBJ		TBC		DBT		HTB		OGB		CBG		Total Loans with Deterioration of Credit Quality
	(Dollars in thousands)
Construction and development	$	16,513	$	16,086	$	8,976	$	4,821	$	2,435	$	21,800	$	6,508	$	4,783	$	15,038	$	96,960
Real estate secured		8,460		3,987		16,422		13,279		20,305		111,973		67,497		35,621		56,847		334,391
Commercial, industrial, agricultural		12,102		769		73		886		7,134		5,379		153		9,263		1,256		37,015
Consumer		2		633		—		252		99		666		58		253		273		2,236

	$	37,077	$	21,475	$	25,471	$	19,238	$	29,973	$	139,818	$	74,216	$	49,920	$	73,414	$	470,602


The covered loans without deterioration of credit quality on the respective acquisition dates are presented in the following table:
	AUB		USB		SCB		FBJ		TBC		DBT		HTB		OGB		CBG		Total Loans without Deterioration of Credit Quality
	(Dollars in thousands)
Construction and development	$	991	$	14,190	$	7,824	$	3,163	$	4,513	$	15,571	$	53	$	3,346	$	5,507	$	55,158
Real estate secured		3,583		37,100		33,160		17,040		34,056		91,097		9,423		19,716		32,751		277,926
Commercial, industrial, agricultural		14,393		6,135		1,568		526		22,260		11,891		242		1,471		6,288		64,774
Consumer		438		4,746		728		487		1,766		2,963		798		390		6,822		19,138

	$	19,405	$	62,171	$	43,280	$	21,216	$	62,595	$	121,522	$	10,516	$	24,923	$	51,368	$	416,996


The total covered loans on the respective acquisition dates are presented in the following table:
	AUB		USB		SCB		FBJ		TBC		DBT		HTB		OGB		CBG		Total Covered Loans
	(Dollars in thousands)
Construction and development	$	17,504	$	30,276	$	16,800	$	7,984	$	6,948	$	37,371	$	6,561	$	8,129	$	20,545	$	152,118
Real estate secured		12,043		41,087		49,582		30,319		54,361		203,070		76,920		55,337		89,598		612,317
Commercial, industrial, agricultural		26,495		6,904		1,641		1,412		29,394		17,270		395		10,734		7,544		101,789
Consumer		440		5,379		728		739		1,865		3,629		856		643		7,095		21,374

	$	56,482	$	83,646	$	68,751	$	40,454	$	92,568	$	261,340	$	84,732	$	74,843	$	124,782	$	887,598

The following table presents the loans receivable (in thousands) at the acquisition date for loans with deterioration in credit quality.


2012 Acquisitions:	CBG		MBT		Total

	(Dollars in thousands)
Contractually required principal payments receivable	$	137,407	$	-	$	137,407
Non-accretable difference		53,603		-		53,603

Present value of cash flows expected to be collected		83,804		-		83,804
Accretable difference		10,390		-		10,390

Fair value of loans acquired with deterioration of credit quality	$	73,414	$	-	$	73,414


2011 Acquisitions:	HTB		OGB		Total
	(Dollars in thousands)
Contractually required principal payments receivable	$	136,928	$	104,858	$	241,786
Non-accretable difference		49,447		45,629		95,076

Present value of cash flows expected to be collected		87,481		59,229		146,710
Accretable difference		13,265		9,309		22,574

Fair value of loans acquired with deterioration of credit quality	$	74,216	$	49,920	$	124,136


2010 Acquisitions:	SCB		FBJ		TBC		DBT		Total
	(Dollars in thousands)
Contractually required principal payments receivable	$	49,864	$	29,474	$	51,908	$	225,262	$	356,508
Non-accretable difference		22,885		6,672		20,569		56,637		106,763

Present value of cash flows expected to be collected		26,979		22,802		31,339		168,625		249,745
Accretable difference		1,508		3,564		1,366		28,807		35,245

Fair value of loans acquired with deterioration of credit quality	$	25,471	$	19,238	$	29,973	$	139,818	$	214,500


2009 Acquisitions:	AUB		USB		Total
	(Dollars in thousands)
Contractually required principal payments receivable	$	65,438	$	44,372	$	109,810
Non-accretable difference		26,416		21,292		47,708

Present value of cash flows expected to be collected		39,022		23,080		62,102
Accretable difference		1,945		1,605		3,550

Fair value of loans acquired with deterioration of credit quality	$	37,077	$	21,475	$	58,552

The following table summarizes components of all covered assets at December 31, 2012 and 2011 and their origin:


	Covered loans		Less: Credit risk adjustments		Less: Liquidity and rate adjustments		Total covered loans		OREO		Less: Fair value adjustments		Total covered OREO		Total covered assets		FDIC indemnification asset
As of December 31, 2012:	(Dollars in thousands)

AUB	$	27,169	$	2,481	$	-	$	24,688	$	10,636	$	102	$	10,534	$	35,222	$	2,905

USB		27,286		4,320		-		22,966		7,087		99		6,988		29,954		6,619

SCB		41,389		3,285		-		38,104		10,686		654		10,032		48,136		6,133

FBJ		32,574		6,204		27		26,343		3,260		526		2,734		29,077		6,589

DBT		169,527		41,631		207		127,689		30,395		2,160		28,235		155,924		47,012

TBC		46,796		4,979		173		41,644		11,089		1,381		9,708		51,352		8,073

HTB		90,602		16,072		52		74,478		13,980		4,954		9,026		83,504		20,020

OGB		81,908		17,127		136		64,645		9,168		4,078		5,090		69,735		16,871

CBG		124,200		36,884		161		87,155		9,046		3,120		5,926		93,081		45,502


Total	$	641,451	$	132,983	$	756	$	507,712	$	105,347	$	17,074	$	88,273	$	595,985	$	159,724


As of December 31, 2011:

AUB	$	34,242	$	3,236	$	-	$	31,006	$	11,100	$	-	$	11,100	$	42,106	$	7,271

USB		51,409		5,259		50		46,100		7,445		50		7,395		53,495		10,648

SCB		56,780		5,779		155		50,846		10,635		500		10,135		60,981		6,527

FBJ		40,106		7,473		92		32,541		2,370		641		1,729		34,270		8,551

DBT		260,883		68,757		703		191,423		28,947		2,763		26,184		217,607		105,528

TBC		79,586		14,358		331		64,897		8,441		1,274		7,167		72,064		18,628

HTB		110,899		28,024		73		82,802		20,132		10,171		9,961		92,763		48,289

OGB		105,285		33,221		190		71,874		12,615		7,669		4,946		76,820		36,952


Total	$	739,190	$	166,107	$	1,594	$	571,489	$	101,685	$	23,068	$	78,617	$	650,106	$	242,394

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. The adjustments to estimated cash flows are performed on a loan-by-loan basis and have resulted in the following:


Total Amounts	December 31, 2012		December 31, 2011
	(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)	$	23,050	$	22,031

Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)	$	13,190	$	11,940

Amounts reflected in the Company’s Statement of Operations	December 31, 2012		December 31, 2011
	(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)	$	4,610	$	4,406

Adjustments needed where the Company’s initial estimate of cash flows were overstated: (recorded through a provision for loan losses)	$	2,638	$	2,388

A rollforward of acquired loans with deterioration of credit quality for the years ended December 31, 2012 and 2011 is shown below:


	2012			2011
	(Dollars in thousands)
Balance, beginning of year	$	307,790		$	252,535
Change in estimate of cash flows, net of charge-offs or recoveries		(17,712	)		(25,787	)
Additions due to acquisitions		73,414			124,136
Other (loan payments, transfers, etc.)		(80,755	)		(43,094	)

Balance, end of year	$	282,737		$	307,790

A rollforward of acquired loans without deterioration of credit quality for the years ended December 31, 2012 and 2011 is shown below:


	2012			2011
	(Dollars in thousands)
Balance, beginning of year	$	266,966		$	302,456
Change in estimate of cash flows, net of charge-offs or recoveries		1,376			(11,604	)
Additions due to acquisitions		51,368			35,439
Other (loan payments, transfers, etc.)		(91,108	)		(59,325	)

Balance, end of year	$	228,602		$	266,966

The following is a summary of changes in the accretable discounts of acquired loans during the years ended December 31, 2012 and 2011:


	2012			2011
	(Dollars in thousands)
Balance, beginning of year	$	29,537		$	37,383
Additions due to acquisitions		9,863			24,094
Accretion		(45,752	)		(36,519	)
Other activity, net		23,050			4,579

Balance, end of year	$	16,698		$	29,537

The loss-sharing agreements are subject to the servicing procedures as specified in the agreement with the FDIC. The expected reimbursements under the loss-sharing agreements were recorded as an indemnification asset at their estimated fair values of $52.7 million and $95.0 million on the 2012 and 2011 acquisition dates, respectively. Changes in the FDIC loss-share receivable are as follows:


	For the Years Ended December 31,
	2012			2011
	(Dollars in Thousands)

Beginning balance	$	242,394		$	177,187

Indemnification asset recorded in acquisitions		52,654			94,973
Payments received from FDIC		(128,730	)		(36,813	)
Effect of change in expected cash flows on covered assets		(6,594	)		7,047

Ending balance	$	159,724		$	242,394