10-K 1 fin10ktest.htm AMERIS BANCORP 10K 12/31/2007 fin10ktest.htm
 
 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

T
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

           For the fiscal year ended December 31, 2007

or

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

           For the transition period from ______________ to_______________.

Commission File Number
001-13901
 

 
AMERIS BANCORP
(Exact name of registrant as specified in its charter)

GEORGIA
 
58-1456434
(State of incorporation)
 
(IRS Employer ID No.)

24 SECOND AVE., SE  MOULTRIE, GA 31768
(Address of principal executive offices)
 
(229) 890-1111
(Registrant’s telephone number)


Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, Par Value $1 Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  o       No T

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act.       Yes  o       No T

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes  T        No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act.

Large accelerated filer o  
Accelerated filer T
 Non-accelerated filer o
Smaller Reporting Company filer o 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).
Yes  o       No T

 

 
 
As of the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by nonaffiliates of the registrant was approximately $304.3 million.

 As of February 22, 2008, the registrant had outstanding 13,556,770 shares of common stock, $1.00 par value per share.
 
 
 
DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Annual Report is incorporated by reference from the Registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report.



 

AMERIS BANCORP

PART I
Page
Item 1.
3
     
Item 1a.
16
     
Item 1b.
20
     
Item 2.
20
     
Item 3.
21
     
Item 4.
21
     
PART II
 
Item 5.
21
     
Item 6.
23
     
Item 7.
25
     
Item 7a.
43
     
Item 8.
43
     
Item 9.
43
     
Item 9a.
44
     
Item 9b.
46
     
PART III
 
Item 10.
47
     
Item 11.
48
     
Item 12.
48
     
Item 13.
48
     
Item 14.
48
     
PART IV
 
Item 15.
50
     
     
 
 

 
-1-

 

CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K (this “Annual Report”) under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere, including information incorporated herein by reference to other documents, are “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking statements.  You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.  These forward-looking statements may not be realized due to a variety of factors, including, without limitation, those described in Part I, Item 1A. “Risk Factors,” and elsewhere in this report and those described from time to time in our future reports filed with the Securities and Exchange Commission (the “Commission”) under the Exchange Act.

All written or oral forward-looking statements that are made by or are attributable to us are expressly qualified in their entirety by this cautionary notice.  Our forward-looking statements apply only as of the date of this report or the respective date of the document from which they are incorporated herein by reference.  We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future events or otherwise.
 
 


PART I

As used in this document, the terms “we,” “us,” “our,” “Ameris Bancorp,” “Ameris” and the “Company” mean Ameris Bancorp and its subsidiaries (unless the context indicates another meaning).

ITEM 1.  BUSINESS

GENERAL OVERVIEW

We are a financial holding company whose business is conducted primarily through our wholly-owned banking subsidiary, which provides a full range of banking services to its retail and commercial customers located primarily in Georgia, Alabama, northern Florida and South Carolina.  Ameris Bancorp (“Ameris” or the “Company”) was incorporated on December 18, 1980 as a Georgia corporation.  The Company’s executive office is located at 24 2nd Avenue, S.E., Moultrie, Georgia 31768, its telephone number is (229) 890-1111 and its Internet address is http://www.amerisbank.com.  We operate 46 domestic banking offices with no foreign activities.  At December 31, 2007, we had approximately $2.11 billion in total assets, $1.61 billion in total loans, $1.76 billion in total deposits and shareholders’ equity of $191.2 million.  Ameris’ deposits are insured, up to applicable limits, by the Federal Deposit Insurance Corporation.

THE PARENT COMPANY

Our primary business as a bank holding company is to manage the business and affairs of our banking subsidiary, Ameris Bank (the “Bank”).  As a bank holding company, we perform certain shareholder and investor relations functions and seek to provide financial support, if necessary, to our subsidiary.

AMERIS BANK

Our principal subsidiary is the Bank.  The Bank, headquartered in Moultrie, Georgia, operates branches in Georgia, Alabama, northern Florida and South Carolina.  These branches serve distinct communities in our business areas with autonomy but do so as one bank, leveraging our favorable geographic footprint in an effort to acquire more customers.

CAPITAL TRUST SECURITIES

On September 20, 2006, Ameris completed a private placement of an aggregate of $36 million of trust preferred securities.  The placement occurred through a newly formed Delaware statutory trust subsidiary of Ameris, Ameris Statutory Trust I (the “Trust”).  The trust preferred securities carry a quarterly adjustable interest rate of 1.63% over three-month LIBOR. The trust preferred securities mature on December 15, 2036 and are redeemable at the Company’s option beginning September 15, 2011.  The terms of the trust preferred securities are set forth in that certain Amended and Restated Declaration of Trust dated as of September 20, 2006 among Ameris, Wilmington Trust Company, as institutional trustee and Delaware trustee, and the administrators named therein.  The payments of distributions on and redemption or liquidation of the trust preferred securities issued by the Trust are guaranteed by Ameris pursuant to a Guarantee Agreement dated as of September 20, 2006 between Ameris and Wilmington Trust Company, as trustee.
 
The net proceeds to Ameris from the placement of the trust preferred securities by the Trust were primarily used to redeem outstanding trust preferred securities issued by Ameris on November 8, 2001.  These trust preferred securities were redeemed on September 30, 2006 for $35.6 million.

On December 16, 2005, Ameris purchased First National Banc, Inc. which had formed during 2004 First National Banc Statutory Trust I, a subsidiary whose sole purpose was to issue $5,000,000 principal amount of trust preferred securities at a rate per annum equal to the 3-Month LIBOR plus 2.80% through a pool sponsored by a national brokerage firm.  These trust preferred securities have a maturity of 30 years and are redeemable at the Company’s option on any quarterly interest payment date after five years.  There are certain circumstances (as described in the trust documents) under which the securities may be redeemed within the first five years at the Company’s option.  See Notes to Ameris’ Consolidated Financial Statements included in this Annual Report for a further discussion regarding the issuance of these trust preferred securities.



BUSINESS STRATEGY

Our business strategy is to establish Ameris as a major financial institution in Georgia, Alabama, northern Florida and South Carolina.  Management has pursued this objective through an acquisition-oriented growth strategy and a prudent operating strategy.  Our operating model allows the Company to put as many resources in front of customers as possible with efforts to minimize the expense of our operations.  We are continuously evaluating our structure to maximize opportunities to perfect the balance between efficiency and customer service.  Our markets are managed by senior level, experienced decision makers in a decentralized structure that differentiates us from our competition.  Management believes that this structure, along with involvement in and knowledge of our local markets, will continue to provide growth and assist in managing risk throughout our Company.

We have maintained a long-term focus on a strategy that includes expanding and diversifying our franchise in terms of revenues, profitability and asset size.  Our growth over the past several years has been enhanced significantly by bank acquisitions.  We expect to continue to take advantage of the consolidation in the financial services industry and enhance our franchise through future acquisitions.  We intend to grow within our existing markets, to branch into or acquire financial institutions in existing markets and to branch into or acquire financial institutions in other markets consistent with our capital availability and management abilities.

BANKING SERVICES

Lending Activities

General.  The Company maintains a diversified loan portfolio by providing a broad range of commercial and retail lending services to business entities and individuals.  We provide agricultural loans, commercial business loans, commercial and residential real estate construction and mortgage loans, consumer loans, revolving lines of credit and letters of credit.  The Company also originates first mortgage residential mortgage loans and enters into a commitment to sell these loans in the secondary market.  We make no foreign or energy-related loans.

At December 31, 2007, Ameris’ loan portfolio totaled $1.61 billion, representing approximately 76.3% of our total assets of $2.11 billion.  For additional discussion of our loan portfolio, see “Management’s Discussion of Financial Condition and Results of Operations – Loan Portfolio.”

Commercial Real Estate Loans.  This portion of our loan portfolio has grown significantly over the past few years and represents the largest portion of our loan portfolio.  These loans are generally extended for acquisition, development or construction of commercial properties.  The loans are underwritten with an emphasis on the viability of the project, the borrower’s ability to meet certain minimum debt service requirements and an analysis and review of the collateral and guarantors.

Residential Real Estate Mortgage Loans.  Ameris originates adjustable and fixed-rate residential mortgage loans.  These mortgage loans are generally originated under terms and conditions consistent with secondary market guidelines.  Some of these loans will be placed in the Company’s loan portfolio; however, a majority are sold to the secondary mortgage market.  The residential real estate mortgage loans that are included in the Company’s loan portfolio are usually owner-occupied and generally amortized over a 10 to 20 year period with three to five year maturity or repricing.

Agricultural Loans.  Our agricultural loans are extended to finance crop production, the purchase of farm-related equipment or farmland and the operations of dairies and poultry producers.  Agricultural loans typically involve seasonal fluctuations in amounts.  Although we typically look to an agricultural borrower’s cash flow as the principal source of repayment, agricultural loans are also generally secured by a security interest in the crops or the farm-related equipment and, in some cases, an assignment of crop insurance and mortgage on real estate.  The lending officer visits the borrower regularly during the growing season and re-evaluates the loan in light of the borrower’s updated cash flow projections.  A portion of our agricultural loans are guaranteed by the FSA Guaranteed Loan Program.



Commercial and Industrial Loans. General commercial and industrial loans consist of loans made primarily to manufacturers, wholesalers and retailers of goods, service companies and other industries.  These loans are made for acquisition, expansion and working capital purposes and may be secured by real estate, accounts receivable, inventory, equipment, personal guarantees or other assets.  The Company monitors these loans by requesting submission of corporate and personal financial statements and income tax returns.  The Company has also generated loans which are guaranteed by the U.S. Small Business Administration (the “SBA”).  SBA loans are generally underwritten in the same manner as conventional loans generated for the Bank’s portfolio.  Periodically, a portion of the loans that are secured by the guaranty of the SBA will be sold in the secondary market.  Management believes that making such loans helps the local community and also provides Ameris with a source of income and solid future lending relationships as such businesses grow and prosper.  The primary repayment risk for commercial loans is the failure of the business due to economic or financial factors.

Consumer Loans.  Our consumer loans include motor vehicle, home improvement, home equity, student and signature loans and small personal credit lines.  The terms of these loans typically range from 12 to 60 months and vary based upon the nature of collateral and size of the loan.  These loans are generally secured by various assets owned by the consumer.

Credit Administration

We have sought to maintain a comprehensive lending policy that meets the credit needs of each of the communities served by the Bank, including low- and moderate-income customers, and to employ lending procedures and policies consistent with this approach.  All loans are subject to our corporate loan policy, which is reviewed annually and updated as needed.  The loan policy provides that lending officers have sole authority to approve loans of various amounts commensurate with their seniority and experience.  Our local market Presidents have discretion to approve loans in varying principal amounts up to established limits.  Our regional credit officers review and approve loans that exceed each President’s lending authority.

Individual lending authorities are assigned by the Company, as is the maximum limit of new extensions of credit that may be approved in each market.  Those approval limits are reviewed annually by the Company and adjusted as needed.  All extensions of credit in excess of a market’s approval limit are reviewed by the appropriate Regional Executive.  Further approval by Ameris’ Senior Credit Officer or the Company’s Loan Committee may also be needed.  Under our ongoing loan review program, all loans are subject to sampling and objective review by an assigned loan reviewer who is independent of the originating loan officer.

Each lending officer has authority to make loans only in the market area in which his or her Bank office is located and its contiguous counties.  Occasionally, Ameris’ Loan Committee will approve a loan for purposes outside of the market areas of the Bank, provided the Bank has a previously established relationship with the borrower.  Our lending policy requires analysis of the borrower’s projected cash flow and ability to service the debt.

We actively market our services to qualified lending customers in both the commercial and consumer sectors.  Our commercial lending officers actively solicit the business of new companies entering the market as well as longstanding members of that market’s business community.  Through personalized professional service and competitive pricing, we have been successful in attracting new commercial lending customers.  At the same time, we actively advertise our consumer loan products and continually seek to make our lending officers more accessible.

The Bank continually monitors its loan portfolio to identify areas of concern and to enable management to take corrective action when necessary.  Local market Presidents, lending officers and local boards meet periodically to review all past due loans, the status of large loans and certain other credit or economic related matters.  Individual lending officers are responsible for collection of past due amounts and monitoring any changes in the financial status of the borrowers.



Investment Activities

Our investment policy is designed to maximize income from funds not needed to meet loan demand in a manner consistent with appropriate liquidity and risk objectives. Under this policy, our Company may invest in federal, state and municipal obligations, corporate obligations, public housing authority bonds, industrial development revenue bonds, Government Sponsored Entities (“GSEs”) securities and satisfactorily rated trust preferred obligations.  Investments in our portfolio must satisfy certain quality criteria.  Our Company’s investments must be rated at least “BAA” by either Moody’s or Standard and Poor’s.  Securities rated below “A” are periodically reviewed for creditworthiness.  Our Company may purchase non-rated municipal bonds only if the issuer of such bonds is located in the Company’s general market area and such bonds are determined by the Company to have a credit risk no greater than the minimum ratings referred to above. Industrial development authority bonds, which normally are not rated, are purchased only if the issuer is located in the Company’s market area and if the bonds are considered to possess a high degree of credit soundness.  Traditionally, the Company has purchased and held investment securities with very high levels of credit quality, favoring investments backed by direct or indirect guarantees of the U.S. Government.

While our investment policy permits our Company to trade securities to improve the quality of yields or marketability or to realign the composition of the portfolio, the Bank historically has not done so to any significant extent.

Our investment committee implements the investment policy and portfolio strategies and monitors the portfolio.  Reports on all purchases, sales, net profits or losses and market appreciation or depreciation of the bond portfolio are reviewed by our Boards of Directors each month.  Once a year, the written investment policy is reviewed by the Company’s board of directors.

The Company’s securities are kept in safekeeping accounts at correspondent banks.

Deposits

The Company provides a full range of deposit accounts and services to both retail and commercial customers.  These deposit accounts have a variety of interest rates and terms and consist of interest-bearing and noninterest-bearing accounts, including commercial and retail checking accounts, regular interest-bearing savings accounts, money market accounts, individual retirement accounts and certificates of deposit.  Our Bank obtains most of its deposits from individuals and businesses in its market areas.

Our Bank has not had to attract new or retain old deposits by paying depositors rates of interest on certificates of deposit, money market and other interest-bearing accounts significantly above rates paid by other banks in our market areas.  In the future, increasing competition among banks in our market areas may cause our Bank’s net interest margins to shrink.

Brokered time deposits are deposits obtained by utilizing an outside broker that is paid a fee.  These deposits usually have a higher interest rate than the deposits obtained locally.  The Bank utilizes the brokered deposits to accomplish several purposes, such as (1) acquiring a certain maturity and dollar amount without repricing the Bank’s current customers which could decrease the overall cost of deposits, and (2) acquiring certain maturities and dollar amounts to help manage interest rate risk.

Other Funding Sources

The Federal Home Loan Bank (“FHLB”) allows the Company to obtain advances through its credit program.  These advances are secured by securities owned by the Company and held in safekeeping by the FHLB, FHLB stock owned by the Company and certain qualifying residential mortgages.

The Company also enters into repurchase agreements.  These repurchase agreements are treated as short term borrowings and are reflected on the balance sheet as such.



CORPORATE RESTRUCTURING AND BUSINESS COMBINATIONS

On December 29, 2006, Ameris acquired by merger Islands Bancorp and its banking subsidiary, Islands Community Bank, N.A. (collectively, “Islands”).  Islands was headquartered in Beaufort, South Carolina where it operated a single branch with satellite loan production offices in Bluffton, South Carolina and Charleston, South Carolina.  The acquisition of Islands was significant to the Company, as Ameris had recruited senior level talent that would be instrumental in executing a growth strategy designed to build a meaningful franchise in South Carolina’s top markets.  The consideration for the acquisition was a combination of cash and Ameris common stock with an aggregate purchase price of approximately $19.0 million.  The total consideration consisted of $5.1 million in cash and approximately 494,000 shares of Ameris common stock with a value of approximately $13.9 million.  Islands’ results of operations for 2006 are not included in Ameris’ consolidated financial results because the acquisition’s effective time was after the close of business on the last day of the fiscal year.

On December 16, 2005, Ameris acquired all the issued and outstanding common shares of First National Banc, Inc., the parent company of First National Bank, in St. Mary’s, Georgia and First National Bank, in Orange Park, Florida (collectively “FNB”).  The acquisition was accounted for using the purchase method of accounting, and, accordingly, the results from FNB’s operations have been included in the consolidated financial statements beginning December 17, 2005.  The aggregate purchase price for FNB was $35.3 million, including cash of $13.1 million and the Company’s common stock valued at $22.2 million.

On November 30, 2004, Ameris acquired Citizens Bancshares, Inc., a $54.3 million asset holding company headquartered in Crawfordville, Florida (“Citizens”).  Citizens’ banking offices in Crawfordville, Panacea and Sopchoppy gave the Bank a presence in the panhandle of Florida.  Cash exchanged in this transaction for 100% of the stock of Citizens was $11.5 million.

On August 31, 2005, Ameris announced its intentions to begin consolidating its subsidiary bank charters across Georgia, Alabama and northern Florida into a single charter.  In addition to the charter consolidation effort, the Company announced its intentions to re-brand the Company and its surviving bank subsidiary with a single identity - Ameris Bank.  The re-branding process was completed during 2006.  During 2007, the Company consolidated its loan processing and maintenance functions as well as all deposit operations into service centers close to our corporate headquarters.  This effort centralized mostly non-customer contact rolls and allows our banks to focus almost entirely on sales, customer service and acquisition of new customers.

MARKET AREAS AND COMPETITION

The banking industry in general and in the southeastern United States specifically, is highly competitive and dramatic changes continue to occur throughout the industry.  Our market areas of Georgia, Alabama, northern Florida and South Carolina have experienced strong economic and population growth over the past twenty to thirty years.  In recent years, intense market demands, economic pressures, fluctuating interest rates and increased customer awareness of product and service differences among financial institutions have forced banks to diversify their services and become more cost effective.  Our Bank faces strong competition in attracting deposits and making loans.  Its most direct competition for deposits comes from other commercial banks, thrift institutions, mortgage bankers, finance companies, credit unions and issuers of securities such as brokerage firms. Interest rates, convenience of office locations and marketing are all significant factors in our Bank’s competition for deposits.

Competition for loans comes from other commercial banks, thrift institutions, savings banks, insurance companies, consumer finance companies, credit unions and other institutional lenders.  Our Bank competes for loan originations through the interest rates and loan fees charged and the efficiency and quality of services provided.  Competition is affected by the general availability of lendable funds, general and local economic conditions, current interest rate levels and other factors that are not readily predictable.



Competition among providers of financial products and services continues to increase with consumers having the opportunity to select from a growing variety of traditional and nontraditional alternatives.  The industry continues to rapidly consolidate, which affects competition by eliminating some regional and local institutions, while strengthening the franchise of acquirers.  Management expects that competition will become more intense in the future due to changes in state and federal laws and regulations and the entry of additional bank and nonbank competitors.  See “Supervision and Regulation.”

EMPLOYEES

At December 31, 2007, the Company employed approximately 620 full time equivalent employees.  We consider our relationship with our employees to be satisfactory.

We have adopted one retirement plan for our employees, the Ameris Bancorp 401(k) Profit Sharing Plan.  This plan provides deferral of compensation by our employees and contributions by Ameris.  Ameris and our Bank made contributions for all eligible employees in 2007.  We also maintain a comprehensive employee benefits program providing, among other benefits, hospitalization and major medical insurance and life insurance.  Management considers these benefits to be competitive with those offered by other financial institutions in our market areas.  Our employees are not represented by any collective bargaining group.

RELATED PARTY TRANSACTIONS

The Company makes loans to our directors and their affiliates and to banking officers.  These loans are made on substantially the same terms as those prevailing at the time for comparable transactions and do not involve more than normal credit risk.  At December 31, 2007, we had $1.6 billion in total loans outstanding of which $6.3 million were outstanding to certain directors and their affiliates.  Company policy provides for no loans to executive officers.

SUPERVISION AND REGULATION

General

We are extensively regulated under federal and state law.  Generally, these laws and regulations are intended to protect depositors and not shareholders.  The following is a summary description of certain provisions of certain laws that affect the regulation of bank holding companies and banks.  The discussion is qualified in its entirety by reference to applicable laws and regulations.  Changes in such laws and regulations may have a material effect on our business and prospects.

Federal Bank Holding Company Regulation and Structure

As a bank holding company, we are subject to regulation under the Bank Holding Company Act and to the supervision, examination and reporting requirements of the Federal Reserve Board of Governors.  Our Bank has a Georgia state charter and is subject to regulation, supervision and examination by the Federal Deposit Insurance Corporation (the “FDIC”) and the Georgia Department of Banking and Finance (the “GDBF”).

The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before:

•  
it may acquire direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than 5% of the voting shares of the bank;

•  
it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank; or

•  
it may merge or consolidate with any other bank holding company.



The Bank Holding Company Act further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or that would substantially lessen competition in the banking business, unless the public interest in meeting the needs of the communities to be served outweighs the anti-competitive effects.  The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks involved and the convenience and needs of the communities to be served.  Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues focuses, in part, on the performance under the Community Reinvestment Act of 1977, both of which are discussed in more detail.

The Bank Holding Company Act generally prohibits a bank holding company from engaging in activities other than banking; managing or controlling banks or other permissible subsidiaries and acquiring or retaining direct or indirect control of any company engaged in any activities other than activities closely related to banking or managing or controlling banks.

The activities in which holding companies and their affiliates are permitted to engage were substantially expanded by the Gramm-Leach-Bliley Act, which was signed on November 12, 1999.  The Gramm-Leach-Bliley Act repeals the anti-affiliation provisions of the Glass-Steagall Act to permit the common ownership of commercial banks, investment banks and insurance companies.  The Gramm-Leach-Bliley Act also amends the Bank Holding Company Act to permit a financial holding company to, among other things, engage in any activity that the Federal Reserve determines to be (i) financial in nature or incidental to such financial activity or (ii) complementary to a financial activity and not a substantial risk to the safety and soundness of depository institutions or the financial system generally.  The Federal Reserve must consult with the Secretary of the Treasury in determining whether an activity is financial in nature or incidental to a financial activity.  Holding companies may continue to own companies conducting activities which had been approved by federal order or regulation on the day before the Gramm-Leach-Bliley Act was enacted.  Effective August 24, 2000, pursuant to a previously-filed election with the Federal Reserve, Ameris became a financial holding company.

In determining whether a particular activity is permissible, the Federal Reserve considers whether performing the activity can be expected to produce benefits to the public that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices.  The Federal Reserve has the power to order a bank holding company or its subsidiaries to terminate any activity or control of any subsidiary when the continuation of the activity or control constitutes a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company.

Our Bank is also subject to numerous state and federal statutes and regulations that affect its business, activities and operations and is supervised and examined by state and federal bank regulatory agencies.  The FDIC and the GDBF regularly examine the operations of our Bank and are given the authority to approve or disapprove mergers, consolidations, the establishment of branches and similar corporate actions.  These agencies also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.

Payment of Dividends and Other Restrictions

Ameris is a legal entity separate and distinct from its subsidiaries.  While there are various legal and regulatory limitations under federal and state law on the extent to which our Bank can pay dividends or otherwise supply funds to Ameris, the principal source of Ameris’ cash revenues is dividends from our Bank.  The prior approval of applicable regulatory authorities is required if the total dividends declared by the Bank in any calendar year exceeds 50% of the Bank’s net profits for the previous year.  The relevant federal and state regulatory agencies also have authority to prohibit a state member bank or bank holding company, which would include Ameris and the Bank, from engaging in what, in the opinion of such regulatory body, constitutes an unsafe or unsound practice in conducting its business.  The payment of dividends could, depending upon the financial condition of the subsidiary, be deemed to constitute an unsafe or unsound practice in conducting its business.



Under Georgia law, the prior approval of the GDBF is required before any cash dividends may be paid by a state bank if: (i) total classified assets at the most recent examination of such bank exceed 80% of the equity capital (as defined, which includes the reserve for loan losses) of such bank; (ii) the aggregate amount of dividends declared or anticipated to be declared in the calendar year exceeds 50% of the net profits (as defined) for the previous calendar year; or (iii) the ratio of equity capital to adjusted total assets is less than 6%.

Retained earnings of our Bank available for payment of cash dividends under all applicable regulations without obtaining governmental approval were approximately $9.1 million as of December 31, 2007.

In addition, our Bank is subject to limitations under Section 23A of the Federal Reserve Act with respect to extensions of credit to, investments in and certain other transactions with Ameris. Furthermore, loans and extensions of credit are also subject to various collateral requirements.

The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company should pay cash dividends only to the extent that the holding company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition.  The Federal Reserve also indicated that it would be inappropriate for a holding company experiencing serious financial problems to borrow funds to pay dividends.  Furthermore, under the prompt corrective action regulations adopted by the Federal Reserve, the Federal Reserve may prohibit a bank holding company from paying any dividends if one or more of the holding company’s bank subsidiaries are classified as undercapitalized.

Bank holding companies are required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of their consolidated net worth.  The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order or any condition imposed by, or written agreement with, the Federal Reserve.  This notification requirement does not apply to any company that meets the well-capitalized standard for commercial banks, has a safety and soundness examination rating of at least a “2” and is not subject to any unresolved supervisory issues.  As of December 31, 2007, Ameris met these requirements.

Capital Adequacy

We must comply with the Federal Reserve’s established capital adequacy standards, and our Bank is required to comply with the capital adequacy standards established by the FDIC.  The Federal Reserve has promulgated two basic measures of capital adequacy for bank holding companies: a risk-based measure and a leverage measure.  A bank holding company must satisfy all applicable capital standards to be considered in compliance.

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, account for off-balance-sheet exposure and minimize disincentives for holding liquid assets.

Assets and off-balance-sheet items are assigned to broad risk categories, each with appropriate weights.  The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items.



The minimum guideline for the ratio of total capital to risk-weighted assets is 8%.  At least half of total capital must be comprised of Tier 1 Capital, which is common stock, undivided profits, minority interests in the equity accounts of consolidated subsidiaries and noncumulative perpetual preferred stock, less goodwill and certain other intangible assets.  The remainder may consist of Tier 2 Capital, which is subordinated debt, other preferred stock and a limited amount of loan loss reserves.  Since 2001, our consolidated capital ratios have been increased due to the issuance of trust preferred securities.  At December 31, 2007, all of our trust preferred securities were included in Tier 1 Capital.  At December 31, 2007, Ameris’ total risk-based capital ratio and its Tier 1 risk-based capital ratio were 11.59% and 10.34%, respectively.

In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies.  These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and certain other intangible assets, of 3% for bank holding companies that meet specified criteria.  All other bank holding companies generally are required to maintain a minimum leverage ratio of 4%.  Ameris’ ratio at December 31, 2007 was 8.39% and at December 31, 2006 was 8.58%.  The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets.  Furthermore, the Federal Reserve has indicated that it will consider a “tangible Tier 1 Capital leverage ratio” and other indicia of capital strength in evaluating proposals for expansion or new activities.  The Federal Reserve has not advised Ameris of any specific minimum leverage ratio or tangible Tier 1 Capital leverage ratio applicable to it.

Our Bank is subject to risk-based and leverage capital requirements adopted by the FDIC that are substantially similar to those adopted by the Federal Reserve for bank holding companies.  Our Bank was in compliance with applicable minimum capital requirements as of December 31, 2007.

Neither Ameris nor its Bank has been advised by any federal banking agency of any specific minimum capital ratio requirement applicable to it.

In January 2001, the Basel Committee on Banking Supervision issued a consultative paper entitled “Proposal for a New Basel Capital Accord” and, subsequently, the Basel Committee, which is comprised of bank supervisors and central banks from the major industrialized countries, issued a number of working papers supplementing various aspects of the 2001 paper (the “New Accord”).  Based on these documents, the New Accord would adopt a three-pillar framework for addressing capital adequacy.  These pillars would include minimum capital requirements, more emphasis on supervisory assessment of capital adequacy and greater reliance on market discipline.  Under the New Accord, minimum capital requirements would be more differentiated based upon perceived distinctions in creditworthiness.  Such requirements would be based either on ratings assigned by rating agencies or, in the case of a banking organization that met certain supervisory standards, on the organization’s internal credit ratings.  The minimum capital requirements in the New Accord would also include a separate capital requirement for operational risk.  In June 2004, the Basel Committee published new international guidelines for calculating regulatory capital, and since that time the U.S. banking regulators have published draft guidance of their interpretation of the new guidelines.  At the beginning of 2007, we were required to calculate regulatory capital under the New Accord, in parallel with the existing capital rules.  In 2008, we will calculate regulatory capital solely under the New Accord.

Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on taking brokered deposits and certain other restrictions on its business.  As described below, the FDIC can impose substantial additional restrictions upon FDIC-insured depository institutions that fail to meet applicable capital requirements.



Acquisitions

As an active acquirer, we must comply with numerous laws related to our acquisition activity.  Under the Bank Holding Company Act, a bank holding company may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank or merge or consolidate with another bank holding company without the prior approval of the Federal Reserve.  Current federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation.  Furthermore, a bank headquartered in one state is authorized to merge with a bank headquartered in another state, as long as neither of the states has opted out of such interstate merger authority prior to such date, and subject to any state requirement that the target bank shall have been in existence and operating for a minimum period of time, not to exceed five years, and to certain deposit market-share limitations.  After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable federal or state law.

FDIC Insurance Assessments

The FDIC insures the deposits of the Bank up to prescribed limits for each depositor.  The amount of FDIC assessments paid by each Bank Insurance Fund (BIF) member institution is based on its relative risks of default as measured by regulatory capital ratios and other factors.  Specifically, the assessment rate is based on the institution’s capitalization risk category and supervisory subgroup category.  An institution’s capitalization risk category is based on the FDIC’s determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized.  An institution’s supervisory subgroup category is based on the FDIC’s assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required.  The FDIC may terminate insurance of deposits upon a finding that a institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

The Federal Deposit Insurance Act (or “FDI Act”) requires the federal regulatory agencies to take “prompt corrective action” if a depository institution does not meet minimum capital requirements.  The FDI Act establishes five capital tiers: “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized” and “critically undercapitalized”.  A depository institution’s capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation.

The federal bank regulatory agencies have adopted regulations establishing relevant capital measurers and relevant capital levels applicable to FDIC-insured banks.  The relevant capital measures are the Total Capital ratio, Tier 1 Capital ratio and the leverage ratio.  Under the regulations, a FDIC-insured bank will be:

·  
“well capitalized” if it has a Total Capital ratio of 10% or greater, a Tier 1 Capital ratio of 6% or greater and a leverage ratio of 5% or greater and is not subject to any order or written directive by the appropriate regulatory authority to meet and maintain a specific capital level for any capital measure;

·  
“adequately capitalized” if it has a Total Capital ratio of 8% or greater, a Tier 1 Capital ratio of 4% or greater and a leverage ratio of 4% or greater (3% in certain circumstances) and is not “well capitalized”;

·  
“undercapitalized” if it has a Total Capital ratio of less than 8%, a Tier 1 Capital ratio of less than 4% or a leverage ratio of less than 4% (3% in certain circumstances);

·  
“significantly undercapitalized” if it has a Total Capital ratio of less than 6%, a Tier 1 Capital ratio of less than 3% or a leverage ratio of less than 3%; and

·  
“critically undercapitalized” if its tangible equity is equal to or less than 2% of average quarterly tangible assets.



An institution may be downgraded to, or deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.  As of December 31, 2007, our Bank had capital levels that qualify as “well capitalized” under such regulations.

The Gramm-Leach-Bliley Act allows bank holding companies that are “well managed” and “well capitalized” and whose depositor subsidiaries have “satisfactory” or better Community Reinvestment Act ratings to become financial holding companies that may engage in a substantially broader range of non-banking activities than is otherwise permissible, including insurance underwriting and securities activities.  As previously stated, Ameris became a financial holding company effective August 24, 2000.

The FDI Act generally prohibits an FDIC-insured bank from making a capital distribution (including payment of a dividend) or paying any management fee to its holding company if the bank would thereafter be “undercapitalized.”  “Undercapitalized” banks are subject to growth limitations and are required to submit a capital restoration plan.  The federal regulators may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the bank’s capital.  In addition, for a capital restoration plan to be acceptable, the bank’s parent holding company must guarantee that the institution will comply with such capital restoration plan.  The aggregate liability of the parent holding company is limited to the lesser of: (i) an amount equal to 5% of the bank’s total assets at the time it became “undercapitalized”; and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan.  If a bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”

“Significantly undercapitalized” insured banks may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized”, requirements to reduce total assets and the cessation of receipt of deposits from correspondent banks.  “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.  A bank that is not “well capitalized” is also subject to certain limitations relating to so-called “brokered” deposits.

Community Reinvestment Act

The Community Reinvestment Act requires federal bank regulatory agencies to encourage financial institutions to meet the credit needs of low- and moderate-income borrowers in their local communities.  An institution’s size and business strategy determines the type of examination that it will receive.  Large, retail-oriented institutions are examined using a performance-based lending, investment and service test.  Small institutions are examined using a streamlined approach.  All institutions may opt to be evaluated under a strategic plan formulated with community input and pre-approved by the bank regulatory agency.

The Community Reinvestment Act regulations provide for certain disclosure obligations.  Each institution must post a notice advising the public of its right to comment to the institution and its regulator on the institution’s Community Reinvestment Act performance and to review the institution’s Community Reinvestment Act public file.  Each lending institution must maintain for public inspection a file that includes a listing of branch locations and services, a summary of lending activity, a map of its communities and any written comments from the public on its performance in meeting community credit needs.  The Community Reinvestment Act requires public disclosure of a financial institution’s written Community Reinvestment Act evaluations.  This promotes enforcement of Community Reinvestment Act requirements by providing the public with the status of a particular institution’s community reinvestment record.



The Gramm-Leach-Bliley Act made various changes to the Community Reinvestment Act.  Among other changes, Community Reinvestment Act agreements with private parties must be disclosed and annual Community Reinvestment Act reports must be made available to a bank’s primary federal regulator.  A bank holding company will not be permitted to become a financial holding company and no new activities authorized under the Gramm-Leach-Bliley Act may be commenced by a holding company or by a bank financial subsidiary if any of its bank subsidiaries received less than a “satisfactory” Community Reinvestment Act rating in its latest Community Reinvestment Act examination.

Consumer Protection Laws

The Bank is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy and population.  These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act and state law counterparts.

Federal law currently contains extensive customer privacy protection provisions.  Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information.  These provisions also provide that, except for certain limited exceptions, an institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure.  Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.

Additional Legislative and Regulatory Matters

On October 26, 2001, President Bush signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”).  Among its other provisions, the USA PATRIOT Act requires each financial institution: (i) to establish an anti-money laundering program; (ii) to establish due diligence policies, procedures and controls with respect to its private banking accounts involving foreign individuals and certain foreign banks; and (iii) to avoid establishing, maintaining, administering or managing correspondent accounts in the United States for, or on behalf of, foreign banks that do not have a physical presence in any country.  The USA PATRIOT Act also requires the Secretary of the Treasury to prescribe by regulation minimum standards that financial institutions must follow to verify the identity of customers, both foreign and domestic, when a customer opens an account.  In addition, the USA PATRIOT Act contains a provision encouraging cooperation among financial institutions, regulatory authorities and law enforcement authorities with respect to individuals, entities and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities.

On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), which mandated a variety of reforms intended to address corporate and accounting fraud.  Sarbanes-Oxley also provided for the establishment of the Public Company Accounting Oversight Board (“PCAOB”), which enforces auditing, quality control and independence standards for firms that audit Securities and Exchange Commission (“SEC”) reporting companies.  Sarbanes-Oxley imposes higher standards for auditor independence and restricts provision of consulting services by auditing firms to companies they audit and in addition, certain audit partners must be rotated periodically.  Sarbanes-Oxley requires chief executive officers and chief financial officers, or their equivalents, to certify to the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willfully violate this certification requirement.  In addition, under Sarbanes-Oxley, counsel is required to report specific violations.  Directors and executive officers must report most changes in their ownership of a company’s securities and executives have restrictions on trading and loans.  Sarbanes-Oxley also increases the oversight and authority of audit committees of publicly traded companies.  Although Ameris has incurred and will continue to incur additional expense in complying with the provisions of Sarbanes-Oxley and the related rules, management does not expect that such compliance will have a material impact on Ameris’ financial condition or results of operation.



Fiscal and Monetary Policy

Banking is a business which depends on interest rate differentials for success.  In general, the difference between the interest paid by a bank on its deposits and its other borrowings, and the interest received by a bank on its loans and securities holdings, constitutes the major portion of a bank’s earnings.  Thus, our earnings and growth will be subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve.  The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, the discount rate at which banks may borrow from the Federal Reserve and the reserve requirements on deposits.  The nature and timing of any changes in such policies and their effect on Ameris cannot be predicted.

Current and future legislation and the policies established by federal and state regulatory authorities will affect our future operations.  Banking legislation and regulations may limit our growth and the return to our investors by restricting certain of our activities.

In addition, capital requirements could be changed and have the effect of restricting our activities or requiring additional capital to be maintained.  We cannot predict what changes, if any, will be made to existing federal and state legislation and regulations or the effect that such changes may have on our business.

Federal Home Loan Bank System

Our Company has a correspondent relationship with the Federal Home Loan Bank of Atlanta (“FHLB”), which is one of 12 regional Federal Home Loan Banks (or “FHLBs”) that administer the home financing credit function of savings companies.  Each FHLB serves as a reserve or central bank for its members within its assigned region.  FHLBs are funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB system and make loans to members (i.e., advances) in accordance with policies and procedures, established by the board of directors of the FHLB which are subject to the oversight of the Federal Housing Finance Board.  All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB.  In addition, all long-term advances are required to provide funds for residential home financing.

FHLB provides certain services to our Company such as processing checks and other items, buying and selling federal funds, handling money transfers and exchanges, shipping coin and currency, providing security and safekeeping of funds or other valuable items and furnishing limited management information and advice.  As compensation for these services, our Company maintains certain balances with FHLB in interest-bearing accounts.

Under federal law, the FHLBs are required to provide funds for the resolution of troubled savings companies and to contribute to low- and moderately-priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects.

Title 6 of the Gramm-Leach-Bliley Act, entitled the Federal Home Loan Bank System Modernization Act of 1999 (called the “FHLB Modernization Act”), amended the Federal Home Loan Bank Act to allow voluntary membership and modernized the capital structure and governance of the FHLBs.  The capital structure established under the FHLB Modernization Act sets forth leverage and risk-based capital requirements based on permanence of capital.  It also requires some minimum investment in the stock of the FHLBs of all member entities.  Capital includes retained earnings and two forms of stock: Class A stock redeemable within six months upon written notice and Class B stock redeemable within five years upon written notice.  The FHLB Modernization Act also reduced the period of time in which a member exiting the FHLB system must stay out of the system.



Real Estate Lending Evaluations

The federal regulators have adopted uniform standards for evaluations of loans secured by real estate or made to finance improvements to real estate.  Banks are required to establish and maintain written internal real estate lending policies consistent with safe and sound banking practices and appropriate to the size of the institution and the nature and scope of its operations.  The regulations establish loan to value ratio limitations on real estate loans.  Our Company’s loan policies establish limits on loan to value ratios that are equal to or less than those established in such regulations.

Changing Regulatory Structure

The laws and regulations affecting banks and bank holding companies are in a state of change.  The rules and the regulatory agencies in this area have changed significantly over recent years, and there is reason to expect that similar changes will continue in the future.  It is not possible to predict the outcome of these changes.

One of the major additional burdens imposed on the banking industry is the increased authority of federal agencies to regulate the activities of federal and state banks and their holding companies.  The Federal Reserve and the FDIC have extensive authority to police unsafe or unsound practices and violations of applicable laws and regulations by depository institutions and their holding companies.  These agencies can assess civil money penalties. Other laws such as Sarbanes-Oxley have expanded the agencies’ authority in recent years, and the agencies have not yet fully tested the limits of their powers.  In addition, the GDBF possesses broad enforcement powers to address violations of Georgia’s banking laws by banks chartered in Georgia.

Economic Environment

The policies of regulatory authorities, including the monetary policy of the Federal Reserve, have a significant effect on the operating results of bank holding companies and their subsidiaries.  Among the means available to the Federal Reserve to affect the money supply are open market operations in U.S. government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements against member bank deposits.  These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.

The Federal Reserve’s monetary policies have materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future.  The nature of future monetary policies and the effect of these policies on the business and earnings of our Company cannot be predicted.

ITEM 1A.  RISK FACTORS

An investment in the common stock of Ameris is subject to risks inherent in the Company’s business. The material risks and uncertainties that management believes affect Ameris are described below.  Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this Annual Report. The risks and uncertainties described below are not the only ones facing the Company.  Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations.  This Annual Report is qualified in its entirety by these risk factors.
 
If any of the following risks actually occurs, the Company’s financial condition and results of operations could be materially and adversely affected.  If this were to happen, the value of the common stock of Ameris could decline significantly, and you could lose all or part of your investment.



Changes in interest rates could adversely impact the Company’s financial condition and results of operations.  

The Company’s earnings and cash flows are largely dependent upon its net interest income.  Net interest income is the difference between interest income earned on interest-earning assets, such as loans and securities, and interest expense paid on interest-bearing liabilities, such as deposits and borrowed funds.  Interest rates are highly sensitive to many factors that are beyond the control of Ameris, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board of Governors.  Changes in monetary policy, including changes in interest rates, could influence not only the interest the Company receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect the Company’s ability to originate loans and obtain deposits, the fair value of the Company’s financial assets and liabilities and the average duration of the Company’s mortgage-backed securities portfolio.  If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Company’s net interest income and, therefore, its earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.  Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on the Company’s results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the Company’s financial condition and results of operations.

If the Company has higher loan losses than it has allowed for, its earnings could materially decrease.  

The Company’s loan customers may not repay loans according to their terms, and the collateral securing the payment of loans may be insufficient to assure repayment.  Ameris may therefore experience significant credit losses which could have a material adverse effect on its operating results.  Ameris makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans.  In determining the size of the allowance for loan losses, the Company relies on many factors including its  previous experience and its evaluation of economic conditions.  If assumptions prove to be incorrect, the current allowance for loan losses may not be sufficient to cover losses inherent in the loan portfolio and adjustment may be necessary to allow for different economic conditions or adverse developments in the loan portfolio.  Consequently, a problem with one or more loans could require the Company to significantly increase the level of its provision for loan losses.  In addition, federal and state regulators periodically review the Company’s allowance for loan losses and may require it to increase its provision for loan losses or recognize further loan charge-offs.  Material additions to the allowance would materially decrease the Company’s net income.  

Ameris has a high concentration of loans secured by real estate and a downturn in the real estate market, for any reason, could result in losses and materially and adversely affect business, financial condition, results of operations and future prospects.
 
A significant portion of the Company’s loan portfolio is dependent on real estate.  In addition to the financial strength and cash flow characteristics of the borrower in each case, often loans are secured with real estate collateral.  At December 31, 2007, approximately 78.2% of loans have commercial or residential real estate as a component of collateral.  The real estate in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended.  Further adverse changes in the economy affecting values of real estate generally or in Ameris’ primary markets specifically could significantly impair the value of collateral and ability to sell the collateral upon foreclosure.  Furthermore, it is likely that, in a decreasing real estate market, Ameris would be required to increase its allowance for loan losses as occurred in 2007, causing material strain on recurring levels of net income.  If the Company is required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase its allowance for loan losses, its profitability and financial condition could be adversely impacted.



Ameris operates in a highly regulated environment and may be adversely impacted by changes in law and regulations.  

Ameris, primarily through its Bank, is subject to extensive federal and state regulation and supervision.  Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not shareholders.  These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things.  Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes.  Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Company in substantial, unpredictable and adverse ways.  Such changes could subject the Company to additional costs, limit the types of financial services and products the Company may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things.  Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the Company’s business, financial condition and results of operations.  While the Company has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.

Ameris relies on dividends from its banking subsidiary for most of its revenue.
 
Ameris Bancorp is a separate and distinct legal entity from its subsidiaries.  It receives substantially all of its revenue from dividends from the Bank.  These dividends are the principal source of funds to pay dividends on the Company’s common stock and interest and principal on the Company’s debt.  Various federal and/or state laws and regulations limit the amount of dividends that the Bank may pay to the Company.  Also, the Company’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.  In the event the Bank is unable to pay dividends to the Company, the Company may not be able to service debt, pay obligations or pay dividends on the Company’s common stock and its business, financial condition and results of operations may be adversely affected.

Ameris’ Articles of Incorporation and Bylaws may prevent or delay a takeover by another company.

Ameris’ Articles of Incorporation permit Ameris’ board of directors to issue preferred stock without shareowner action.  The ability to issue preferred stock could discourage a company from attempting to obtain control of Ameris by means of a tender offer, merger, proxy contest or otherwise.  Additionally, Ameris’ Articles of Incorporation and Bylaws divide Ameris’ board of directors into three classes, as nearly equal in size as possible, with staggered three-year terms.  One class is elected each year.  The classification of Ameris’ board of directors could make it more difficult for a company to acquire control of Ameris.  Ameris is also subject to certain provisions of the Georgia Business Corporation Code and Ameris’ Articles of Incorporation which relate to business combinations with interested shareholders.

Ameris operates in a highly competitive industry and market areas.

Ameris faces substantial competition in all areas of its operations from a variety of different competitors, many of whom are larger and may have more financial resources.  Such competitors primarily include national, regional and community banks within the various markets in which the Bank operates.  Ameris also faces competition from many other types of financial institutions, including, without limitation, savings and loan institutions, credit unions, finance companies, brokerage firms, insurance companies, factoring companies and other financial intermediaries.  The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation.  Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking.  Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.  Many of the Company’s competitors have fewer regulatory constraints and may have lower cost structures.  Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than the Company can.



The Company’s ability to compete successfully depends on a number of factors, including, among other things:
 
·  
the ability to develop, maintain and build upon long-term customer relationships based on quality service, high ethical standards and safe, sound assets;

·  
the ability to expand the Company’s market position;

·  
the scope, relevance and pricing of products and services offered to meet customer needs and demands;

·  
the rate at which the Company introduces new products and services relative to its competitors;

·  
customer satisfaction with the Company’s level of service; and

·  
industry and general economic trends.
 
Failure to perform in any of these areas could significantly weaken the Company’s competitive position, which could adversely affect the Company’s growth and profitability, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.

Potential acquisitions may disrupt the Company’s business and dilute shareholder value.

Acquiring other banks, businesses or branches involves various risks commonly associated with acquisitions, including, among other things:
 
·  
potential exposure to unknown or contingent liabilities of the target company;

·  
exposure to potential asset quality issues of the target company;

·  
difficulty and expense of integrating the operations and personnel of the target company;

·  
potential disruption to the Company’s business;

·  
potential diversion of the Company’s management’s time and attention;

·  
the possible loss of key employees and customers of the target company;

·  
difficulty in estimating the value of the target company; and

·  
potential changes in banking or tax laws or regulations that may affect the target company.
 
 
Ameris has recently acquired other financial institutions and often evaluates additional merger and acquisition opportunities related to possible transactions with other financial institutions and financial services companies.  As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving cash, debt or equity securities of the Company may occur at any time.  Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of the Company’s tangible book value and net income per common share may occur in connection with any future transaction.  Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence and/or other projected benefits and synergies from an acquisition could have a material adverse effect on the Company’s financial condition and results of operations.



Ameris continually encounters technological change.
 
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.  The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.  The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Company’s operations.  Many of the Company’s competitors have substantially greater resources to invest in technological improvements.  The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers.  Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on the Company’s business and, in turn, the Company’s financial condition and results of operations.

Ameris may not be able to attract and retain skilled people.
 
The Company’s success depends, in large part, on its ability to attract and retain key people.  Competition for the best people in most activities engaged in by the Company can be intense and the Company may not be able to hire people or to retain them.  The unexpected loss of services of one or more of the Company’s key personnel could have a material adverse impact on the Company’s business because of their skills, knowledge of the Company’s market, years of industry experience and the difficulty of promptly finding qualified replacement personnel.

Financial services companies depend on the accuracy and completeness of information about customers and counterparties.
 
In deciding whether to extend credit or enter into other transactions, the Company may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information.  The Company may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information.  Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on the Company’s business and, in turn, the Company’s financial condition and results of operations.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

Ameris’ corporate headquarters is located at 24 Second Avenue, SE, Moultrie, Georgia 31768.  The Company occupies approximately 43,348 square feet at this location including 3,524 square feet used by the Bank.  In addition to executive offices and the Bank, the corporate headquarters includes mostly support services for banking operations including credit, sales and operational support, as well as audit and loan review services.

In addition to its corporate headquarters, Ameris operates 46 office or branch locations, of which 39 are owned and seven are subject to either building or ground leases.   At December 31, 2007, there were no significant encumbrances on the offices, equipment or other operational facilities owned by Ameris and the Bank.




From time to time, the Company and the Bank are parties to legal proceedings arising in the ordinary course of our business operations, including the case described below.  Management, after consultation with legal counsel, does not anticipate that current litigation will have a material adverse effect on the Company’s financial position or results of operations or cash flows.

On June 15, 2006, a Houston County, Alabama jury entered a verdict in a civil action against Southland Bank, a former subsidiary of the Company that in 2006 was merged with and into the Bank, and one of Southland Bank’s employees in the amount of approximately $7.1 million.  The plaintiffs in this action had unsuccessfully applied to Southland Bank for a business loan.  The plaintiffs sued Southland Bank and the employee for actual and punitive damages alleging a number of purported causes of action, including breach of contract, negligent failure to provide a loan and fraud, among other things, based on Southland Bank’s denial of the loan application.  The verdict assesses compensatory damages in the amount of $2.1 million and punitive damages against Southland Bank in the amount of $5 million.  The defendants have filed post-trial motions with the Supreme Court of the State of Alabama and expect a ruling during 2008.  It is anticipated that any potential financial obligation that we or our subsidiaries might have to the plaintiffs in this action will be covered by existing insurance.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

No matters were submitted to a vote of our shareholders during the fourth quarter of 2007.

PART II

ITEM 5.  MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price of Common Stock

Ameris’ common stock, $1.00 par value per share (the “Common Stock”), is listed on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “ABCB”.  The following table sets forth:  (i) the high and low bid prices for the Common Stock as quoted on NASDAQ during 2007 and 2006; and (ii) the amount of quarterly dividends declared on the Common Stock during the periods indicated.  The high and low bid prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

Quarter Ended 2007
 
High
   
Low
   
Close
   
Dividend
 
                         
March 31
  $ 27.73     $ 23.11     $ 24.33     $ .14  
June 30
    25.58       21.76       22.47       .14  
September 30
    23.05       17.72       18.08       .14  
December 31
    18.67       13.73       16.85       .14  
                                 
Quarter Ended 2006
 
High
   
Low
   
Close
   
Dividend
 
                                 
March 31
  $ 22.87     $ 19.26     $ 22.87     $ .14  
June 30
    23.01       20.03       22.91       .14  
September 30
    27.77       20.99       27.07       .14  
December 31
    28.99       25.77       28.18       .14  
 

 
Holders of Common Stock

As of February 22, 2007, there were approximately 2,000 holders of record of the Company’s Common Stock.  The Company believes that a portion of Common Stock outstanding is held either in nominee name or street name brokerage accounts; therefore, the Company is unable to determine the number of beneficial owners of the Common Stock.



Performance Graph

Set forth below is a line graph comparing the change in the cumulative total shareholder return on the Common Stock against the cumulative return of the NASDAQ Stock Market (U.S. Companies) Index and the index of NASDAQ Bank Stocks for the five-year period commencing December 31, 2002, and ending December 31, 2007.  This line graph assumes an investment of $100 on December 31, 2002 and reinvestment of dividends and other distributions to shareholders.
 


ITEM 6.  SELECTED FINANCIAL DATA

The following table presents selected consolidated financial information for Ameris. The data set forth below is derived from the audited consolidated financial statements of Ameris.  The acquisitions of Citizens on November 30, 2004, FNB on December 15, 2005 and Islands on December 31, 2006 have significantly affected the comparability of selected financial data.  Specifically, since these acquisitions were accounted for using the purchase method, the assets of the acquired institutions were recorded at their fair values, the excess purchase price over the net fair value of the assets was recorded as goodwill and the results of operations for these businesses have been included in the Company’s results since the date these acquisitions were completed.  Accordingly, the level of our assets and liabilities and our results of operations for these acquisitions have significantly affected the Company’s financial position and results of operations.  Discussion of these acquisitions can be found in the “Corporate Restructuring and Business Combinations” section of Part 1, Item 1. of this Annual Report and in Note 3 – Business Combinations in the Notes to Consolidated Financial Statements.  The selected financial data should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and the Notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.
 


 
Year Ended December 31,
 
 
2007
 
2006
 
2005
 
2004
 
2003
 
 
(Dollars in Thousands, Except Per Share Data)
 
Selected Balance Sheet Data:
                             
Total assets
 
$
2,112,063
   
$
2,047,542
   
$
1,697,209
   
$
1,267,993
   
$
1,169,111
 
Total loans
   
1,614,048
     
1,442,951
     
1,186,601
     
877,074
     
840,539
 
Total deposits
   
1,757,265
     
1,710,163
     
1,375,232
     
986,224
     
906,524
 
Investment securities
   
298,729
     
290,207
     
243,742
     
221,741
     
196,289
 
Shareholders’ equity
   
191,249
     
178,732
     
148,703
     
120,939
     
113,613
 
                                         
Selected Income Statement Data:
                                       
Interest income
 
$
146,077
   
$
124,111
   
$
79,539
   
$
64,365
   
$
64,479
 
Interest expense
   
70,999
     
54,150
     
26,934
     
19,375
     
22,141
 
Net interest income
   
75,078
     
69,961
     
52,605
     
44,990
     
42,338
 
                                         
Provision for loan losses
   
11,321
     
2,837
     
1,651
     
1,786
     
3,945
 
Other income
   
17,592
     
19,262
     
13,530
     
13,023
     
14,718
 
Other expenses
   
58,896
     
53,129
     
43,607
     
36,505
     
35,147
 
Income before tax
   
22,453
     
33,257
     
20,877
     
19,722
     
17,964
 
Income tax expense
   
7,300
     
11,129
     
7,149
     
6,621
     
5,954
 
Net income
 
$
15,153
   
$
22,128
   
$
13,728
   
$
13,101
   
$
12,010
 
                                         
Per Share Data:
                                       
Net income - basic
 
$
1.12
   
$
1.71
   
$
1.15
   
$
1.12
   
$
1.03
 
Net income – diluted
   
1.11
     
1.68
     
1.14
     
1.11
     
1.02
 
Book value
   
14.06
     
13.19
     
11.48
     
10.28
     
9.68
 
Tangible book value
   
9.67
     
8.73
     
7.64
     
7.9
     
7.76
 
Dividends
   
0.56
     
0.56
     
0.56
     
0.47
     
0.43
 
 
 

 

 
Year Ended December 31,
 
 
2007
 
2006
 
2005
 
2004
 
2003
 
 
(Dollars in Thousands, Except Per Share Data)
 
                                         
Profitability Ratios:
                                       
Net income to average total assets
   
0.74
%
   
1.22
%
   
1.04
%
   
1.12
%
   
1.04
%
Net income to average
                                       
    stockholders’ equity
   
8.13
     
13.9
     
10.87
     
11.19
     
10.85
 
Net interest margin
   
4.02
     
4.25
     
4.31
     
4.15
     
3.96
 
Efficiency ratio
   
63.55
     
59.55
     
65.94
     
62.93
     
61.6
 
                                         
                                       
Net charge-offs to total loans
   
0.53
%
   
0.09
%
   
0.03
%
   
0.22
%
   
0.46
%
Reserve for loan losses to total loans
                                       
and OREO
   
1.71
     
1.72
     
1.88
     
1.77
     
1.78
 
Nonperforming assets to total loans
                                       
and OREO
   
1.6
     
0.61
     
0.9
     
0.7
     
0.95
 
Reserve for loan losses to
                                       
nonperforming loans
   
145.72
     
361.54
     
232.57
     
274.7
     
231.2
 
Reserve for loan losses to total
                                       
nonperforming assets
   
106.47
     
281.93
     
207.68
     
253.32
     
187.58
 
                                         
Liquidity Ratios:
                                       
Loans to total deposits
   
91.85
%
   
84.38
%
   
86.28
%
   
88.93
%
   
92.72
%
Average loans to average
                                       
 earnings assets
   
81.72
     
79.39
     
77.32
     
80.91
     
78.63
 
Noninterest-bearing deposits to
                                       
total deposits
   
9.36
     
12.96
     
14.6
     
15.22
     
15.63
 
                                         
Capital Adequacy Ratios:
                                       
Common stockholders’ equity to
                                       
total assets
   
9.06
%
   
8.73
%
   
8.76
%
   
9.54
%
   
9.72
%
    Dividend payout ratio
   
50.00
     
32.94
     
48.7
     
41.96
     
41.75
 




ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

Ameris Bancorp’s performance in 2007 was highlighted by a number of significant items.  The Bank exceeded forecasts for loans and deposits in South Carolina in our first year of expansion strategy while at the same time containing operating expenses despite substantial start-up costs associated with these expansion efforts.  In addition to expansion, the Company completed consolidation of backroom operations across our four-state footprint and grew revenue 7.6% despite negative pressures from interest rate environment and industry trends on service charges.  Although the Company made great strides during the year, an increase in the provision for loan loss was required due to deteriorating real estate environments along coastal areas of Florida.

For the year ended December 31, 2007, Ameris reported net income of $15.2 million, or $1.11 per diluted share compared to net income in 2006 of $22.1 million, or $1.68 per diluted share.  Net income for the fourth quarter of 2007 was $1.2 million or $0.09 per diluted share compared to $5.8 million or $0.43 per diluted share in the fourth quarter of 2006.

Recurring total revenue (net interest income and non-interest income) grew 7.6% during 2007 to $92.7 million.  The net interest income component of total revenue grew 7.4% to $75.1 million in 2007. Loan growth of $171.1 million or 11.9% during 2007 was the primary factor behind the growth in net interest income and more than offset the negative pressures from declining net interest margins.  The Company’s net interest margin in 2007 declined to 4.02% from 4.27% in 2006 as the industry dealt with historically thin spreads and flat to inverted interest rate environments.

The non-interest income component of total revenue grew 8.6% to $17.9 million in 2007 (excluding gains on sales of charters in 2006 and losses on investment sales in both years). Service charges and fees on deposit accounts grew 7.9% to $12.5 million as the Company increased certain fees and charges.  In addition, the Company significantly increased the number of low-cost deposit accounts in every market.  Mortgage origination and related fees increased substantially during 2007 as the Company more than doubled its sales force, mostly in the last half of 2007.  While total revenue from mortgage related activities increased 40.1% to $3.1 million during 2007, contribution to net earnings was limited due to various start-up costs.

Total operating expenses grew 10.9% in 2007 to $58.9 million compared to $53.1 million in 2006.  Several factors impacted operating expenses in 2007, the largest factor being the Company’s South Carolina initiative, which accounted for approximately $4.5 million in incremental costs during 2007. Total net operating losses associated with the South Carolina strategy in 2007 were $0.10 per share, which compares favorably with the $0.13 per share amount that was initially forecasted. Equipment and occupancy expenses increased approximately 9.3% to $7.5 million as additional offices in South Carolina and Florida were opened in 2007. Marketing costs are not expected to moderate or fall in 2008 as the Company has planned events surrounding openings in several new markets across its footprint and increased marketing around mortgage and treasury services.

Decreases in credit quality, particularly in the second half of 2007, were significant enough to mitigate improvements elsewhere in the Company.   The majority of the decline, as well as the resulting provisions and net charge-offs resulted from declines in the values of real estate collateral along the coastal areas of north Florida.  Provisions for loan loss in the fourth quarter of 2007 amounted to $6.9 million compared to $713,000 in the same quarter of 2006.  For the year, Ameris Bank recorded $11.3 million in total provision for loan loss, a significant increase over the $2.8 million recorded in 2006.  Net charge-offs in 2007 amounted to 0.53% of average loans compared to 0.09% in 2006.

At December 31, 2007, non-performing assets amounted to $26.0 million or 1.60% of total loans compared to 1.38% of total loans at September 30, 2007.  Other real estate increased approximately $4.5 million during the last quarter as the Company foreclosed on several larger properties which are being marketed aggressively.  The Company’s reserve for loan losses at December 31, 2007 was $27.6 million or 1.71% of total loans, compared to $24.9 million and 1.72%, respectively, at December 31, 2006.



CRITICAL ACCOUNTING POLICIES

Ameris has established certain accounting and financial reporting policies to govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements.  Our significant accounting policies are described in the Notes to the Consolidated Financial Statements.  Certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities; management considers these accounting policies to be critical accounting policies.  The judgments and assumptions used by management are based on historical experience and other factors which are believed to be reasonable under the circumstances.  Because of the nature of the judgments and assumptions made by management, actual results could differ from the judgments and estimates adopted by management which could have a material impact on the carrying values of assets and liabilities and the results of Ameris’ operations.  We believe the following accounting policies applied by Ameris represent critical accounting policies.

Allowance for Loan Losses

We believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of our consolidated financial statements.  The allowance for loan losses represents management’s estimate of probable loan losses inherent in the Company’s loan portfolio.  Calculation of the allowance for loan losses represents a critical accounting estimate due to the significant judgment, assumptions and estimates related to the amount and timing of estimated losses, consideration of subjective environmental factors and the amount and timing of cash flows related to impaired loans.

Management believes that the allowance for loan losses is adequate.  While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination processes, periodically review the Company’s allowance for loan losses.  Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination.

Considering current information and events regarding a borrower’s ability to repay its obligations, management considers a loan to be impaired when the ultimate collectability of all amounts due, according to the contractual terms of the loan agreement, is in doubt. When a loan is considered to be impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or if the loan is collateral-dependent, the fair value of the collateral is used to determine the amount of impairment. Impairment losses are included in the allowance for loan losses through a charge to the provision for losses on loans.

Subsequent recoveries are credited to the allowance for loan losses.  Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement.  Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income.

 



Certain economic and interest rate factors could have a material impact on the determination of the allowance for loan losses.  An increase in interest rates by the Federal Reserve would favorably impact our net interest margin.  An improving economy could result in the expansion of businesses and creation of jobs which would positively affect Ameris’ loan growth and improve our gross revenue stream.  Conversely, certain factors could result from an expanding economy which could increase our credit costs and adversely impact our net earnings.  A significant rapid rise in interest rates could create higher borrowing costs and shrinking corporate profits which could have a material impact on a borrower’s ability to pay.  We will continue to concentrate on maintaining a high quality loan portfolio through strict administration of our loan policy.

Another factor that we have considered in the determination of the allowance for loan losses is loan concentrations to individual borrowers or industries.  We had one credit relationship that exceeded our in-house credit limit of $10.0 million.  The exposure to that credit relationship was approximately $12.2 million.

A substantial portion of our loan portfolio is in the commercial real estate and residential real estate sectors.  Those loans are secured by real estate in Ameris’ primary market area.  A substantial portion of other real estate owned is located in those same markets.  Therefore, the ultimate collectability of a substantial portion of our loan portfolio and the recovery of a substantial portion of the carrying amount of other real estate owned are susceptible to changes to market conditions in Ameris’ primary market area.

Income Taxes

SFAS No. 109, “Accounting for Income Taxes,” requires the asset and liability approach for financial accounting and reporting for deferred income taxes.  We use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences.  See Note 12 to the Notes to Consolidated Financial Statements for additional details.

As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate.  This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation and the provision for loan losses, for tax and financial reporting purposes.  These differences result in deferred tax assets and liabilities that are included in our consolidated balance sheet.

We must also assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance.  Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.  To the extent we establish a valuation allowance or adjust this allowance in a period, we must include an expense within the tax provisions in the statement of income.

We have recorded on our consolidated balance sheet net deferred tax assets of $5.20 million, which includes amounts relating to loss carryforwards.  We believe there will be sufficient taxable income in the future to allow us to utilize these loss carryforwards in the tax jurisdictions where they exist.



Long-Lived Assets, Including Intangibles

In our financial statements, we have recorded $59.6 million of goodwill and other intangible assets, which represents the amount by which the price we paid for acquired businesses exceeds the fair value of tangible assets acquired plus the liabilities assumed.  We evaluate long-lived assets, such as property and equipment, specifically identifiable intangibles and goodwill, when events or changes in circumstances indicate that the carrying value of such assets might not be recoverable.  Factors that could trigger impairment include significant underperformance relative to historical or projected future operating results, significant changes in the manner of our use of the acquired assets and significant negative industry or economic trends.

The determination of whether impairment has occurred is based on an estimate of undiscounted cash flows attributable to the assets as compared to the carrying value of the assets.  If impairment has occurred, the amount of the impairment loss recognized would be determined by estimating the fair value of the assets and recording a loss if the fair value was less than the book value.

In determining the existence of impairment factors, our assessment is based on market conditions, operational performance and legal factors of our Company.  Our review of factors present and the resulting appropriate carrying value of our goodwill, intangibles and other long-lived assets are subject to judgments and estimates that management is required to make.  Future events could cause us to conclude that impairment indicators exist and that our goodwill, intangibles and other long-lived assets might be impaired.  In accordance with accounting rules promulgated by the Financial Accounting Standards Board (“FASB”), no amount of goodwill was expensed in 2007, 2006 or 2005.

NET INCOME AND EARNINGS PER SHARE

In 2007, we reported net income of $15.2 million, or $1.11 per diluted share, compared to $22.1 million, or $1.68 per diluted share in 2006 and $13.7 million, or $1.14 per diluted share, in 2005.  Our return on average assets was 0.74%, 1.22% and 1.04% in 2007, 2006 and 2005, respectively.  Our return on average stockholders’ equity was 8.14%, 13.90% and 10.87% in 2007, 2006 and 2005, respectively.

EARNING ASSETS AND LIABILITIES

Average earning assets in 2007 increased 14.1% over 2006 levels principally due the Company’s de novo efforts in South Carolina.  The earning asset and interest-bearing liability mix is consistently monitored to maximize the net interest margin and therefore increase return on assets and shareholders equity.

The following statistical information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and the financial statements and related notes included elsewhere in this Annual Report and in the documents incorporated herein by reference.



The following tables set forth the amount of the our interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net yield on average interest-earning assets.  Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 35% federal tax rate.

 
Year Ended December 31,
 
 
2007
   
2006
   
2005
 
   
Interest
   
Average
         
Interest
   
Average
         
Interest
   
Average
 
 
Average
Income/
   
Yield/
   
Average
   
Income/
   
Yield/
   
Average
   
Income/
   
Yield/
 
 
Balance
Expense
   
Rate Paid
   
Balance
   
Expense
   
Rate Paid
   
Balance
   
Expense
   
Rate Paid
 
 
(Dollars in Thousands)
 
                                                   
ASSETS
                                                 
Interest-earning assets:
                                                 
Loans
$
1,536,243
 
$
129,376
     
8.42
%
 
$
1,308,405
   
$
107,809
     
8.24
%
 
$
952,647
   
$
69,238
     
7.27
%
Investment securities
 
298,036
   
14,785
     
4.96
     
267,343
     
12,550
     
4.69
     
223,633
     
8,794
     
3.93
 
Short-term assets
 
45,634
   
2,349
     
5.15
     
72,183
     
3,843
     
5.32
     
42,884
     
1,591
     
3.71
 
                                                                     
Total earning assets
 
1,879,913
   
146,510
     
7.79
     
1,647,931
     
124,202
     
7.54
     
1,219,164
     
79,623
     
6.53
 
                                                                     
Non-earning assets
 
175,015
                   
165,839
                     
103,431
                 
                                                                     
          Total assets
$
2,054,928
                 
$
1,813,770
                   
$
1,322,595
                 
                                                                     
                                                                     
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                               
                                                                     
Interest-bearing liabilities:
                                                                   
  Savings and interest-bearing
                                                                   
    demand deposits
$
634,287
 
$
18,014
     
2.84
%
 
$
521,783
   
$
11,397
     
2.18
%
 
$
393,592
   
$
4,013
     
1.02
%
  Time deposits
 
874,609
   
44,367
     
5.07
     
773,089
     
34,202
     
4.42
     
498,036
     
15,016
     
3.02
 
  Other borrowings
 
16,425
   
722
     
4.40
     
11,910
     
514
     
4.32
     
6,521
     
103
     
1.58
 
  FHLB advances
 
92,570
   
4,732
     
5.11
     
91,119
     
4,246
     
4.66
     
100,456
     
4,296
     
4.28
 
  Trust preferred securities
 
42,269
   
3,164
     
7.49
     
41,841
     
3,791
     
8.20
     
35,779
     
3,506
     
9.80
 
     Total interest-bearing
                                                                   
         liabilities
 
1,660,160
   
70,999
     
3.83
     
1,439,742
     
54,150
     
3.74
     
1,034,084
     
26,934
     
2.60
 
                                                                     
    Demand deposits
 
192,575
                   
194,150
                     
154,326
                 
    Other liabilities
 
15,880
                   
20,684
                     
7,895
                 
    Stockholders’ equity
 
186,313
                   
159,194
                     
126,290
                 
                                                                     
      Total liabilities and
                                                                   
        stockholders’ equity
$
2,054,928
                 
$
1,813,770
                   
$
1,322,595
                 
Interest rate spread
               
3.96
%
                   
3.80
%
                   
3.93
%
Net interest income
     
$
75,511
                   
$
70,052
                   
$
52,689
         
Net interest margin
               
4.02
%
                   
4.25
%
                   
4.32
%

 
 


RESULTS OF OPERATIONS

Net Interest Income

Net interest income represents the amount by which interest income on interest-bearing assets exceeds interest expense incurred on interest-bearing liabilities.  Net interest income is the largest component of our income and is affected by the interest rate environment and the volume and composition of interest-earning assets and interest-bearing liabilities.  Our interest-earning assets include loans, investment securities, interest-bearing deposits in banks and federal funds sold.  Our interest-bearing liabilities include deposits, other short-term borrowings, FHLB advances and subordinated debentures.

2007 compared with 2006:

For the year ended December 31, 2007, interest income was $146.1 million, an increase of $22.0 million, or 17.7%, compared to the same period in 2006.  Average earning assets increased $232.0 million, or 14.1%, to $1.88 billion for the year ended December 31, 2007 compared to $1.65 billion as of December 31, 2006.  Yield on average earning assets on a taxable equivalent basis for 2007 increased to 7.79% compared to 7.54% and 6.53% for the years ended December 31, 2006 and 2005, respectively.   The increase in yields on earning assets during 2007 is primarily attributed to better pricing opportunities on fixed rate loans with steady levels of benchmark interest rates for variable rate loans.

Interest expense on deposits and other borrowings for the year ended December 31, 2007 was $71.0, a $16.9 million increase from the year ended December 31, 2006.  Average interest-bearing liabilities increased by $217.9 million, or 13.3% to end the year at $1.85 billion.  Rates on average interest-bearing liabilities rose to 3.83% from 3.29% and 2.60% as of December 31, 2006 and 2005, respectively.  Our Company aggressively manages our cost of funds to achieve a balance between high levels of profitability and acceptable levels of growth.

On a taxable-equivalent basis, net interest income for 2007 was $75.5 million compared to $70.1 million in 2006, an increase of 7.7%.  The Company’s net interest margin, on a tax equivalent basis, decreased to 4.02% for the year ended December 31, 2007 compared to 4.25% as of December 31, 2006. Opportunities to improve the net interest margin proved limited during the year due to an interest rate environment dominated by an inverted yield curve, that gave way to falling short term rates late in 2007.

2006 compared with 2005:

Interest income for the year ended December 31, 2006 was $124.2 million, an increase of $44.6 million, or 56.0%, compared to the same period in 2005.  Average earning assets increased $428.8 million, or 35.2%, to $1.64 billion for the year ended December 31, 2006 compared to $1.22 billion as of December 31, 2005.  Yield on average earning assets on a taxable equivalent basis for 2006 increased to 7.54% from 6.53% and 5.98% for the years ended December 31, 2005 and 2004, respectively.  The Company’s increase in interest income is equally attributable to both an increase in average earning assets and a higher rate environment for most of 2006 than what was seen in previous years.

Interest expense on deposits and other borrowings for the year ended December 31, 2006 was $54.2 million, a $27.2 million increase from the year ended December 31, 2005.  While average interest-bearing liabilities increased substantially, by $405.7 million, the higher rate environment and, consequently, higher rates on those liabilities contributed to the higher level of interest expense.  Rates on average interest-bearing liabilities increased to 3.74% from 2.60% and 2.11% as of December 31, 2005 and 2004, respectively.  Our Company aggressively manages our cost of funds to achieve a balance between high levels of profitability and acceptable levels of growth.

Net interest income for 2006, on a taxable-equivalent basis, was $70.1 million compared to $52.7 million in 2005, an increase of 33.0%.  The Company’s net interest margin, on a tax equivalent basis, decreased slightly to 4.25% for the year ended December 31, 2006 compared to 4.32% as of December 31, 2005.
 
 
 


 
   
Year Ended December 31,
 
   
2007 vs. 2006
   
2006 vs. 2005
 
   
Increase
   
Changes Due To
   
Increase
   
Changes Due To
 
   
(Decrease)
   
Rate
   
Volume
   
(Decrease)
   
Rate
   
Volume
 
   
(Dollars in Thousands)
 
Increase (decrease) in:
                                   
Income from earning assets:
                                   
Interest and fees on loans
  $ 21,567     $ 18,798     $ 2,769     $ 38,321     $ 12,275     $ 26,046  
Interest on securities:
    2,235       1,434       801       3,992       2,038       1,954  
Short-term assets
    (1,494     (1,416     (78 )     2,259       1,165       1,094  
Total interest income
    22,308       18,816       3,492       44,572       15,478       29,094  
                                                 
Expense from interest-bearing liabilities:
                                               
Interest on savings and interest-
                                               
bearing demand deposits
    6,617       2,444       4,173       7,384       6,077       1,307  
Interest on time deposits
    10,164       4,484       5,680       19,186       10,879       8,307  
Interest on other borrowings
    208       195       13       411       335       76  
Interest on FHLB advances
    486       68       418       (50 )     323       (373 )
Interest on trust preferred securities
    (627 )     35       (662 )     285       (667 )     952  
Total interest expense
    16,848       7,226       9,622       27,216       16,947       10,269  
                                                 
Net interest income
  $ 5,460     $ 11,590     $ (6,130 )   $ 17,356     $ (1,469 )   $ 18,825  
 
 
Provision for Loan Losses

The allowance for loan losses is a reserve established through charges to earnings in the form of a provision for loan losses.  The provision for loan losses is based on management’s evaluation of the size and composition of the loan portfolio, the level of non-performing and past due loans, historical trends of charged-off loans and recoveries, prevailing economic conditions and other factors management deems appropriate.  As these factors change, the level of loan loss provision may change.

Decreases in credit quality, particularly in the second half of 2007, were significant enough to mitigate improvements elsewhere in the Company.   The majority of the decline, as well as the resulting provisions and net charge-offs resulted from declines in the values of real estate collateral along the coastal areas of north Florida.  Provisions for loan loss in the fourth quarter of 2007 amounted to $6.9 million compared to $713,000 in the same quarter of 2006.  For the year, Ameris Bank recorded $11.3 million in total provision for loan loss, a significant increase over the $2.8 million recorded in 2006.  Net charge-offs in 2007 amounted to 0.53% of average loans compared to 0.10% in 2006 and 0.04% in 2005.

At December 31, 2007, non-performing assets amounted to $26.0 million or 1.60% of total loans compared to 0.60% of total loans at December 31, 2006.  Other real estate increased approximately $5.7 million during the year as the Company worked aggressively to resolve several larger non-performing loans.  The Company’s reserve for loan losses at December 31, 2007 was $27.6 million or 1.71% of total loans, compared to $24.9 million and 1.72%, respectively, at December 31, 2006 and 1.95% at December 31, 2005.


Non-interest income

Following is a comparison of non-interest income for 2007, 2006 and 2005.


 
Years Ended December 31,
 
 
2007
 
2006
 
2005
 
 
(Dollars in Thousands)
 
Service charges on deposit accounts
  $ 12,445     $ 11,538     $ 10,428  
Mortgage banking activities
    3,093       2,208       1,614  
Gain (loss) on sale of securities
    (297 )     (308 )     (391 )
Other income
    2,351       5,824       1,879  
    $ 17,592     $ 19,262     $ 13,530  
 
 


2007 compared with 2006:

The non-interest income component of total revenue grew 8.4% to $17.9 million in 2007 (excluding gains on sales of charters in 2006 and losses on investment sales in both years). Service charges and fees on deposit accounts grew 7.9% to $12.5 million as the Company increased certain fees and charges.  In addition to increasing fees, the Company significantly increased the number of low-cost deposit accounts in virtually every market.  Mortgage origination and related fees increased substantially during 2007 as the Company more than doubled its sales force, mostly in the last half of 2007.  While total revenue from mortgage related activities increased 40.1% to $3.1 million during 2007, contribution to net earnings was limited due to various start-up costs.

2006 compared with 2005:

Total non-interest income during 2006 increased substantially to $19.3 million, an increase of 42.4% over 2005 levels.  Service charges on deposit accounts increased by 10.6% during 2006 to $11.5 million as the Company experienced strong increases in demand deposits and sought to maximize this area of income with certain changes to its deposit account fee structure.  Mortgage fees increased by 36.8% during 2006 to $2.2 million as the Company expanded its mortgage production staff in most of its geographic footprint.  Other income during 2006 includes $3.1 million of gains recognized from the Company’s successful efforts to sell three banking charters to unrelated parties.

Non-interest expense

Following is a comparison of non-interest expense for 2007, 2006 and 2005.

   
Years Ended December 31,
 
   
2007
   
2006
   
2005
 
   
(Dollars in Thousands)
 
Salaries and employee benefits
  $ 29,844     $ 27,043     $ 22,483  
Equipment and occupancy
    7,540       6,836       4,931  
Amortization of intangible assets
    1,297       1,107       819  
Data processing fees
    2,579       2,136       1,899  
Business restructuring
    0       1,452       2,838  
Other expense
    17,636       14,555       10,637  
    $ 58,896     $ 53,129     $ 43,607  
 


2007 compared with 2006:

Total operating expenses grew 10.9% in 2007 to $58.9 million compared to $53.1 million in 2006.  Several factors impacted operating expenses in 2007, the largest factor being the Company’s South Carolina initiative, which accounted for approximately $4.5 million in incremental costs during 2007.  Equipment and occupancy expenses increased approximately 10.3% to $7.5 million as additional offices in South Carolina and Florida were opened in 2007. Advertising-related expenses in 2007 increased approximately $460,000 to $2.1 million as the Company expanded its marketing in existing markets and promoted its products in new and existing markets. Marketing costs are not expected to moderate or fall in 2008 as the Company has planned events surrounding openings in several new markets across its footprint and increased marketing around mortgage and treasury services.

Expenses associated with data processing increased approximately 20.7% during 2007.  These expenses fluctuate in proportion to business volumes (loans and deposits) and branch officers.  The Company’s expansion efforts over the past few years, as well as acquisition activity, have resulted in higher levels of expense.


2006 compared with 2005:

Non-interest expense increased during 2006 largely as a result of the FNB acquisition.  Expenses for these two banks were not included in our results for 2005 as the acquisition was consummated at the end of the year.  The assets assumed in this acquisition amounted to approximately 18.5% of our total assets at the end of 2005.   In addition to the necessary costs assumed with this acquisition, the Company’s level of operating costs has been influenced by the need to renovate several existing offices and efforts to hire talented bankers when the opportunity exists.

Business restructuring costs of $1.5 million in 2006 relate to the restructuring announced during 2005.  Additional costs were necessary as the Company began to streamline it support functions and finalize its efforts to create a single bank with a uniform and recognizable brand.


Income Taxes:

Federal income tax expense is influenced by the amount of taxable income, the amount of tax-exempt income and the amount of non-deductible expenses.  Income taxes totaled $7.3 million, $11.1 million and $7.1 million in 2007, 2006 and 2005, respectively.  The Company’s effective tax rate was 33%, 33% and 34% for the years ended December 31, 2007, 2006 and 2005.

LOANS

Management believes that our loan portfolio is adequately diversified. The loan portfolio contains no foreign or energy-related loans or significant concentrations in any one industry, with the exception of residential and commercial real estate mortgages, which constituted approximately 54.7% of our loan portfolio as of December 31, 2007.  The amount of loans outstanding at the indicated dates is shown in the following table according to type of loans.

 
   
December 31,
 
   
2007
   
2006
   
2005
   
2004
   
2003
 
   
(Dollars in Thousands)
 
Commercial and financial
  $ 164,708     $ 137,290     $ 129,612     $ 100,585     $  95,514  
Agricultural
    40,433       34,614       31,438       27,718       22,242  
Real estate - construction
    174,576       157,260       73,639       39,516       26,581  
Real estate - mortgage, farmland
    83,784       79,931       65,052       55,910       57,024  
Real estate - mortgage, commercial
    912,727       803,652       654,315       448,425       420,896  
Real estate - mortgage, residential
    157,334       147,789       142,609       126,985       131,181  
Consumer installment loans
    69,099       73,218       79,239       66,779       72,461  
Other
    11,381       9,197       10,646       11,157       14,640  
      1,614,048       1,442,951       1,186,601       877,074       840,539  
Less reserve for possible loan losses
    27,640       24,863       22,294       15,493       14,963  
Loans, net
  $ 1,586,408     $ 1,418,088     $ 1,164,307     $ 861,581     $ 825,576  



Total loans as of December 31, 2007 are shown in the following table according to maturity or repricing opportunities.

   
(Dollars in
 
   
Thousands)
 
Maturity or Repricing Within:
     
One year or less
  $ 725,355  
After one year through five years
    714,869  
After five years
    173,825  
    $ 1,614,048  

The following table summarizes loans at December 31, 2007 with due dates after one year which (1) have predetermined interest rates and (2) have floating or adjustable interest rates.

   
(Dollars in
 
   
Thousands)
 
       
Predetermined interest rates
  $ 495,837  
Floating or adjustable interest rates
    392,857  
    $ 888,694  

Records were not available to present the above information in each category listed in the first paragraph above and could not be reconstructed without undue burden.

ALLOWANCE AND PROVISION FOR LOAN LOSSES

The allowance for loan losses represents a reserve for inherent losses in the loan portfolio. The adequacy of the allowance for loan losses is evaluated periodically based on a review of all significant loans, with a particular emphasis on non-accruing, past due and other loans that management believes might be potentially impaired or warrant additional attention. We segregate our loan portfolio by type of loan and utilize this segregation in evaluating exposure to risks within the portfolio. In addition, based on internal reviews and external reviews performed by independent auditors and regulatory authorities, we further segregate our loan portfolio by loan grades based on an assessment of risk for a particular loan or group of loans. Certain reviewed loans are assigned specific allowances when a review of relevant data determines that a general allocation is not sufficient or when the review affords management the opportunity to fine tune the amount of exposure in a given credit. In establishing allowances, management considers historical loan loss experience but adjusts this data with a significant emphasis on data such as current loan quality trends, current economic conditions and other factors in the markets where the Bank operates. Factors considered include among others, current valuations of real estate in our markets, unemployment rates, the effect of weather conditions on agricultural related entities and other significant local economic events, such as major plant closings.
 
We have developed a methodology for determining the adequacy of the loan loss reserve which is monitored by the Company’s Senior Credit Officer and internal audit staff. Procedures provide for the assignment of a risk rating for every loan included in our total loan portfolio, with the exception of credit card receivables and overdraft protection loans which are treated as pools for risk rating purposes. The risk rating schedule provides eight ratings of which four ratings are classified as pass ratings and four ratings are classified as criticized ratings. Each risk rating is assigned a percent factor to be applied to the loan balance to determine the adequate amount of reserve. Many of the larger loans require an annual review by an independent loan officer and are often reviewed by independent third parties. As a result of these loan reviews, certain loans may be assigned specific reserve allocations. Other loans that surface as problem loans may also be assigned specific reserves. Past due loans are assigned risk ratings based on the number of days past due. Risk ratings are subject to periodic review by internal and external loan review staff.
 


The following table sets forth the breakdown of the allowance for loan losses by loan category for the periods indicated. Management believes the allowance can be allocated only on an approximate basis. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any other category.

 
   
At December 31,
 
   
2007
   
2006
   
2005
   
2004
   
2003
 
   
(Dollars in Thousands)
 
         
% of
         
% of
         
% of
         
% of
         
% of
 
   
Amount
   
Total Loans
   
Amount
   
Total Loans
   
Amount
   
Total Loans
   
Amount
   
Total Loans
   
Amount
   
Total Loans
 
                                                             
Commercial, financial,