10-Q 1 form10q0608.htm AMERIS BANCORP 10Q 0608 form10q0608.htm
 


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.   20549
FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2008

OR

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

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)
 
 
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 x No  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. (Check one):
 

Large accelerated filer o
Accelerated filer x
Smaller Reporting Company o
   
                                   Non-accelerated filer o (Do not check if smaller reporting company)
             

 
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 x

 
There were 13,564,032 shares of Common Stock outstanding as of August 4, 2008.




 
-1-


 
AMERIS BANCORP

 
PART I - FINANCIAL INFORMATION
Page
Item 1.
Financial Statements
 
 
3
     
 
4
     
 
5
     
 
6
     
Item 2.
12
     
Item 3.
23
     
Item 4.
24
     
PART II - OTHER INFORMATION
 
Item 1.
25
     
Item 1A.
25
     
Item 2.
25
     
Item 3.
25
     
Item 4.
26
     
Item 5.
26
     
Item 6.
26
     
 
26
     
     
     
     
     



 





AMERIS BANCORP AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
(dollars in thousands)
 
                   
   
June 30,
   
December 31,
   
June 30,
 
   
2008
   
2007
   
2007
 
   
(Unaudited)
   
(Audited)
   
(Unaudited)
 
Assets
                 
Cash and due from banks
 
$
47,720
   
$
59,804
   
$
50,328
 
Federal funds sold & interest bearing balances
   
38,125
     
12,022
     
16,342
 
Securities available for sale, at fair value
   
293,601
     
291,170
     
300,642
 
Restricted equity securities, at cost
   
9,651
     
7,559
     
8,234
 
                         
Loans
   
1,678,147
     
1,614,048
     
1,556,862
 
    Less: allowance for loan losses
   
28,660
     
27,640
     
25,032
 
Loans, net
   
1,649,487
     
1,586,408
     
1,531,831
 
                         
Premises and equipment, net
   
63,291
     
59,132
     
52,385
 
Intangible assets, net
   
4,217
     
4,802
     
5,450
 
Goodwill
   
54,813
     
54,813
     
54,629
 
Other assets
   
32,116
     
36,353
     
29,232
 
       Total assets
 
$
2,193,021
   
$
2,112,063
   
$
2,049,073
 
                         
Liabilities and Stockholders' Equity
                       
Deposits:
                       
Noninterest-bearing
 
$
200,936
   
$
197,345
   
$
200,849
 
Interest-bearing
   
1,569,925
     
1,559,920
     
1,494,337
 
Total deposits
   
1,770,861
     
1,757,265
     
1,695,185
 
Federal funds purchased & securities sold under agreements to repurchase
   
39,795
     
14,705
     
6,966
 
Other borrowings
   
133,000
     
90,500
     
105,500
 
Other liabilities
   
14,541
     
16,075
     
15,054
 
Subordinated deferrable interest debentures
   
42,269
     
42,269
     
42,269
 
       Total liabilities
   
2,000,466
     
1,920,814
     
1,864,974
 
                         
Stockholders' Equity
                       
Common stock, par value $1; 30,000,000 shares authorized; 14,895,134, 14,869,924 and 14,867,934 issued
   
14,895
     
14,870
     
14,868
 
Capital surplus
   
83,308
     
82,750
     
82,019
 
Retained earnings
   
105,430
     
103,095
     
102,124
 
Accumulated other comprehensive income(loss)
   
(291
)
   
1,303
     
(4,231
)
     
203,342
     
202,018
     
194,780
 
                         
Treasury stock, at cost, 1,331,102, 1,329,939 and 1,326,458 shares
   
(10,787
)
   
(10,769
)
   
(10,681
)
       Total stockholders' equity
   
192,555
     
191,249
     
184,099
 
       Total liabilities and stockholders' equity
 
$
2,193,021
   
$
2,112,063
   
$
2,049,073
 
 
 
See notes to unaudited consolidated financial statements.




 

AMERIS BANCORP AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
(dollars in thousands, except per share data)
 
(Unaudited)
 
                         
                         
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
Interest Income
                       
Interest and fees on loans
 
$
28,339
   
$
31,573
   
$
58,472
   
$
62,332
 
Interest on taxable securities
   
3,645
     
3,434
     
7,228
     
6,771
 
Interest on nontaxable securities
   
173
     
176
     
346
     
355
 
Interest on deposits in other banks
   
91
     
659
     
291
     
1,700
 
Interest on federal funds sold
   
-
     
1
     
-
     
92
 
      Total Interest Income
   
32,249
     
35,842
     
66,337
     
71,251
 
                                 
Interest Expense
                               
Interest on deposits
   
12,314
     
15,540
     
26,456
     
30,744
 
Interest on other borrowings
   
879
     
1,973
     
2,366
     
3,758
 
      Total Interest Expense
   
13,193
     
17,512
     
28,822
     
34,503
 
                                 
     Net Interest Income
   
19,056
     
18,330
     
37,515
     
36,748
 
Provision for Loan Losses
   
3,720
     
936
     
6,920
     
1,444
 
     Net Interest Income After Provision for Loan Losses
   
15,336
     
17,394
     
30,595
     
35,304
 
                                 
Noninterest Income
                               
Service charges on deposit accounts
   
3,664
     
3,066
     
6,980
     
5,936
 
Mortgage banking activity
   
855
     
799
     
1,725
     
1,482
 
Other service charges, commissions and fees
   
220
     
460
     
498
     
805
 
Gain on sale of securities
   
-
     
8
     
-
     
8
 
Other noninterest income
   
574
     
310
     
953
     
937
 
     Total Noninterest Income
   
5,313
     
4,643
     
10,156
     
9,168
 
                                 
Noninterest Expense
                               
Salaries and employee benefits
   
8,660
     
7,492
     
17,278
     
15,224
 
Equipment and occupancy expense
   
2,103
     
1,718
     
4,095
     
3,394
 
Amortization of intangible assets
   
293
     
324
     
585
     
649
 
Data processing fees
   
638
     
581
     
1,241
     
1,374
 
Other operating expenses
   
4,268
     
3,664
     
8,402
     
7,583
 
     Total Noninterest Expense
   
15,961
     
13,780
     
31,601
     
28,224
 
                                 
     Net Income Before Taxes
   
4,688
     
8,257
     
9,150
     
16,248
 
                                 
Provision for Income Taxes
   
1,538
     
2,884
     
3,035
     
5,852
 
                                 
     Net Income
 
$
3,149
   
$
5,373
   
$
6,115
   
$
10,397
 
                                 
Unrealized holding gain/(loss) arising during period, net of tax
   
(4,447
   
(2,292
)    
(1,770
)    
(1,500
Unrealized gain/(loss) on cashflow hedge arising during period, net of tax
   
(1,344
)
   
176
     
249
     
176
 
                                 
    Comprehensive Income
 
$
(2,642
)
 
$
3,257
   
$
4,594
   
$
9,073
 
                                 
Basic earnings per share
 
$
0.23
   
$
0.40
   
$
0.45
   
$
0.77
 
                                 
Diluted earnings per share
 
$
0.23
   
$
0.39
   
$
0.45
   
$
0.76
 
                                 
Dividends declared per share
 
$
0.14
   
$
0.14
   
$
0.28
   
$
0.28
 


See notes to unaudited consolidated financial statements.
 
 

 


 
AMERIS BANCORP AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(dollars in thousands)
 
(Unaudited)
 
   
Six Months Ended
 
   
June 30,
 
   
2008
   
2007
 
Cash Flows From Operating Activities:
           
Net Income
 
$
6,115
   
$
10,397
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
   
1,570
     
1,556
 
Net loss on sale or disposal of premises and equipment
   
(34
)    
-
 
Provision for loan losses
   
6,920
     
1,444
 
Amortization of intangible assets
   
585
     
649
 
Other prepaids, deferrals and accruals, net
   
(1,124
)
   
(10,796
)
      Net cash provided by operating activities
   
14,032
     
3,250
 
                 
                 
                 
Cash Flows From Investing Activities:
               
Net decrease/(increase) in federal funds sold & interest bearing deposits
   
(26,103
)
   
118,890
 
Proceeds from maturities of securities available for sale
   
52,155
     
17,771
 
Purchase of securities available for sale
   
(57,307
)
   
(38,521
)
Proceeds from sales of securities available for sale
   
-
     
982
 
Net increase in loans
   
(75,562
)
   
(113,911
)
Proceeds from sales of other real estate owned
   
10,333
     
-
 
Purchases of premises and equipment
   
(7,314
)
   
(7,337
)
      Net cash used in investing activities
   
(103,798
)
   
(22,126
)
                 
                 
                 
Cash Flows From Financing Activities:
               
Net increase/(decrease) in deposits
   
13,596
     
(14,978
)
Net increase/(decrease) in federal funds purchased & securities sold under agreements to repurchase
   
25,090
 
   
(8,967
)
Net increase in other borrowings
   
42,500
     
30,000
 
Dividends paid
   
(3,798
)
   
(3,844
)
Purchase of treasury shares
   
(18
)
   
-
 
Proceeds from exercise of stock options
   
312
     
137
 
        Net cash provided by financing activities
   
77,682
     
2,348
 
                 
Net decrease in cash and due from banks
 
$
(12,084
)
 
$
(16,528
)
                 
Cash and due from banks at beginning of period
   
59,804
     
66,856
 
                 
Cash and due from banks at end of period
 
$
47,720
   
$
50,328
 

See notes to unaudited consolidated financial statements.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008
(Unaudited)
 
Note 1 - Basis of Presentation & Accounting Policies
Ameris Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered in Moultrie, Georgia.  Ameris conducts the majority of its operations through its wholly owned banking subsidiary, Ameris Bank (the “Bank”).  Ameris Bank currently operates 48 branches in Georgia, Alabama, Northern Florida and South Carolina.  Our business model capitalizes on the efficiencies of a large financial services company while still providing the community with the personalized banking service expected by our customers.  We manage our Bank through a balance of decentralized management responsibilities and efficient centralized operating systems, products and loan underwriting standards.  Ameris’ board of directors and senior managers establish corporate policy, strategy and administrative policies.  Within Ameris’ established guidelines and policies, each advisory board and senior managers make lending and community-specific decisions.  This approach allows the banker closest to the customer to respond to the differing needs and demands of their unique market.

The accompanying unaudited consolidated financial statements for Ameris have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation.  The interim consolidated financial statements included herein are unaudited, but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods presented.  All significant intercompany accounts and transactions have been eliminated in consolidation.  The results of operations for the three months and quarter ended June 30, 2008 are not necessarily indicative of the results to be expected for the full year.  These financial statements should be read in conjunction with the financial statements and notes thereto and the report of our registered independent public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Certain amounts reported for the periods ended June 30, 2007 and December 31, 2007 have been reclassified to conform with the presentation as of June 30, 2008.  These reclassifications had no effect on previously reported net income or stockholders' equity.

Newly Adopted Accounting Pronouncements
Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157).  SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  SFAS 157 has been applied prospectively as of the beginning of the period.
 
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:
 
Level 1 - Quoted prices in active markets for identical assets or liabilities.
 
Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
 
Securities Available for Sale – The fair value of securities available for sale is determined by various valuation methodologies.  Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.  Level 2 securities include certain U.S. agency bonds, collateralized mortgage and debt obligations, and certain municipal securities.  In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include certain residual municipal securities and other less liquid securities.

Derivatives – The Company’s current hedging strategies involve utilizing interest floors. The fair value of derivatives is recognized as assets or liabilities in the financial statements.  The accounting for the changes in the fair value of a derivative depends on the intended use of the derivative instrument at inception.  As of June 30, 2008, the Company had cash flow hedges with a notional amount of $70 million for the purpose of converting floating rate assets to fixed rate.

 
Impaired Loans – Impaired loans are carried at the present value of estimated future cash flows using the loan's existing rate, or the fair value of collateral if the loan is collateral dependent.   A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance.  If these allocations cause the allowance for loan losses to increase, such increase is reported as a component of the provision for loan losses.  Loan losses are charged against the allowance when management believes the uncollectability of a loan is confirmed.  Throughout the quarter certain impaired loans were partially charged-off or re-evaluated for impairment resulting in a remaining balance for these loans.   The fair value of these impaired loans is considered Level 3, and was computed by analysis of appraisals on the underlying collateral and discounted cash flow analysis.

Other Real Estate Owned – The fair value of other real estate owned ("OREO") is determined using certified appraisals that value the property at its highest and best uses by applying traditional valuation methods common to the industry.  The Company does not hold any OREO for profit purposes and all other real estate is actively marketed for sale.
 
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115.  The standard provides companies with an option to report selected financial assets and liabilities at fair value.  Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings.  The objective of SFAS No. 159 is to improve financial reporting by providing entities with the chance to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting standards.  This standard is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.  The Company has not elected the fair value option for any financial assets or liabilities as of June 30, 2008.
 
The following table presents the fair value measurements of assets and liabilities measured at fair value on a recurring basis and the level within the FAS 157 fair value hierarchy in which the fair value measurements fall as of June 30, 2008:
 
         
Fair Value Measurements Using
 
         
Quoted Prices
             
         
in Active
   
Significant
       
         
Markets for
   
Other
   
Significant
 
         
Identical
   
Observable
   
Unobservable
 
         
Assets
   
Inputs
   
Inputs
 
   
Fair Value
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Securities available for sale
 
$
293,601
   
$
6,000
   
$
285,534
   
$
2,067
 
Derivative financial instruments
   
1,789
             
1,789
         
Impaired loans carried at fair value
   
4,445
                     
4,445
 
Other real estate owned
   
3,032
                     
3,032
 
    Total assets at fair value
 
$
302,867
   
$
6,000
   
$
287,323
   
$
9,544
 
 




Note 3 - Investment Securities
Ameris’ investment policy blends the needs of the Company’s liquidity and interest rate risk with its desire to improve income and provide funds for expected growth in loans.  Under this policy, the Company generally invests in obligations of the United States Treasury or other governmental or quasi-governmental agencies.  Ameris’ portfolio and investing philosophy concentrate activities in obligations where the credit risk is limited.  For a small portion of Ameris’ portfolio that has been found to present credit risk, the Company has reviewed the investments and financial performance of the obligors and believes the credit risk to be acceptable.

The amortized cost and estimated fair value of investment securities available for sale at June 30, 2008, December 31, 2007 and June 30, 2007 are presented below:
 
 
   
June 30, 2008
 
(dollars in thousands)
 
Amortized Cost
   
Unrealized Gains
   
Unrealized Losses
   
Estimated Fair Value
 
U. S. Government sponsored agencies
 
$
58,877
   
$
239
   
$
(478
)
 
$
58,638
 
State and municipal securities
   
18,839
     
157
     
(113
)
   
18,883
 
Corporate debt securities
   
12,713
     
112
     
(526
)
   
12,299
 
Mortgage backed securities
   
203,227
     
938
     
(2,172
)
   
201,993
 
Marketable equity securities
   
1,788
     
-
     
-
     
1,788
 
   
$
295,444
   
$
1,446
   
$
(3,289
)
 
$
293,601
 

   
December 31, 2007
 
(dollars in thousands)
 
Amortized Cost
   
Unrealized Gains
   
Unrealized Losses
   
Estimated Fair Value
 
U. S. Government sponsored agencies
 
$
69,562
   
$
366
   
$
(5
)
 
$
69,923
 
State and municipal securities
   
18,232
     
181
     
(93
)
   
18,320
 
Corporate debt securities
   
9,812
     
37
     
(351
)
   
9,498
 
Mortgage-backed securities
   
190,896
     
1,281
     
(536
)
   
191,641
 
Marketable equity securities
   
1,788
     
-
     
-
     
1,788
 
   
$
290.290
   
$
1,865
   
$
(985
)
 
$
291,170
 
 
   
June 30, 2007
 
(dollars in thousands)
 
Amortized Cost
   
Unrealized Gains
   
Unrealized Losses
   
Estimated Fair Value
 
U. S. Government sponsored agencies
 
$
112,316
   
$
3
   
$
(1,653
)
 
$
110,666
 
State and municipal securities
   
18,708
     
3
     
(452
)
   
18,259
 
Corporate debt securities
   
9,808
     
16
     
(252
)
   
9,572
 
Mortgage-backed securities
   
165,126
     
46
     
(3,815
)
   
161,357
 
Marketable equity securities
   
788
     
-
     
-
     
788
 
   
$
306,746
   
$
68
   
$
(6,172
)
 
$
300,642
 




Note 4 - Loans
The Company engages in a full complement of lending activities, including real estate-related loans, agriculture-related loans, commercial and financial loans and consumer installment loans.  Ameris concentrates the majority of its lending activities on real estate loans where the historical loss percentages have been low.  While risk of loss in the Company’s portfolio is primarily tied to the credit quality of the various borrowers, risk of loss may increase due to factors beyond Ameris’ control, such as local, regional and/or national economic downturns.  General conditions in the real estate market may also impact the relative risk in the real estate portfolio.  
 
The Company evaluates loans for impairment when a loan is risk rated as substandard or worse.  The Company measures impairment based upon the present value of the loan’s expected future cash flows discounted at the loan’s effective interest rate, except where foreclosure or liquidation is probable or when the primary source of repayment is provided by real estate collateral.  In these circumstances, impairment is measured based upon the estimated fair value of the collateral.  In addition, in certain circumstances, impairment may be based on the loan’s observable estimated fair value.  Impairment with regard to substantially all of Ameris’ impaired loans has been measured based on the estimated fair value of the underlying collateral.  At the time the contractual principal payments on a loan are deemed to be uncollectible, Ameris’ policy is to record a charge-off against the allowance for loan losses.
 
Nonperforming assets include loans classified as nonaccrual or renegotiated and foreclosed or repossessed assets.  It is the general policy of the Company to stop accruing interest income and place the recognition of interest on a cash basis when any commercial, industrial or commercial real estate loan is 90 days or more past due as to principal or interest and/or the ultimate collection of either is in doubt, unless collection of both principal and interest is assured by way of collateralization, guarantees or other security.  When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against current income unless the collateral for the loan is sufficient to cover the accrued interest or a guarantor assures payment of interest.

Loans are stated at unpaid balances, net of unearned income and deferred loan fees. Balances within the major loans receivable categories are represented in the following table:

 
(dollars in thousands)
 
June 30, 2008
   
December 31, 2007
   
June 30, 2007
 
Commercial, financial & agricultural
 
$
218,055
   
$
188,652
   
$
204,907
 
Real estate – residential
   
392,492
     
386,736
     
347,644
 
Real estate – commercial & farmland
   
631,753
     
592,177
     
562,042
 
Real estate – construction & development
   
373,033
     
383,317
     
380,617
 
Consumer installment
   
52,488
     
55,114
     
56,419
 
Other
   
10,326
     
8,052
     
5,233
 
   
$
1,678,147
   
$
1,614,048
   
$
1,556,862
 

 

 



Note 5 - Allowance for Loan Losses
Activity in the allowance for loan losses for the six months ended June 30, 2008, for the year ended December 31, 2007 and for the six months ended June 30, 2007 is as follows:

 
(dollars in thousands)
 
June 30, 2008
   
December 31, 2007
   
June 30, 2007
 
Balance, January 1
 
$
27,640
   
$
24,863
   
$
24,863
 
     Provision for loan losses charged to expense
   
6,920
     
11,321
     
1,444
 
     Loans charged off
   
(6,745
)
   
(10,418
)
   
(2,113
)
     Recoveries of loans previously charged off
   
845
     
1,874
     
838
 
Ending balance
 
$
28,660
   
$
27,640
   
$
25,032
 
 

 
Note 6 – Goodwill and Intangible Assets
Goodwill represents the excess of cost over the fair value of the net assets purchased in business combinations.  Goodwill is required to be tested annually for impairment or whenever events occur that may indicate that the recoverability of the carrying amount is not probable.  In the event of an impairment, the amount by which the carrying amount exceeds the fair value is charged to earnings.  The Company performed its annual test of impairment in the fourth quarter and determined that there was no impairment in the carrying value of goodwill assigned to its subsidiary Bank as of December 31, 2007.

Market conditions have deteriorated since the end of 2007 with real estate activity and resulting valuations becoming increasingly stressed and exposing areas of risk for which the Company has had reduced clarity.  Management has evaluated the carrying value of its goodwill in light of these new market conditions and believes that there is no impairment in the goodwill assigned to its subsidiary Bank at June 30, 2008.  Management’s determination regarding potential impairment was based on estimates of the fair value of the subsidiary Bank, using valuation methods based largely on multiples of its earnings.  While the subsidiary Bank’s earnings have been impacted by market conditions and weaker than normal credit quality, the Bank’s earnings and the corresponding multiples indicate that there is no impairment at the end of the second quarter of 2008.



Note 7 - Weighted Average Shares Outstanding
Earnings per share have been computed based on the following weighted average number of common shares outstanding:

   
For the Three Months Ended June 30,
   
For the Six Months Ended June 30,
 
   
2008
   
2007
   
2008
   
2007
 
   
(share data in thousands)
   
(share data in thousands)
 
Basic shares outstanding
   
13,511
     
13,486
     
13,504
     
13,465
 
     Plus: Dilutive effect of ISOs
   
39
     
170
     
44
     
182
 
     Plus: Dilutive effect of Restricted Grants
   
13
     
7
     
13
     
18
 
Diluted shares outstanding
   
13,563
     
13,663
     
13,561
     
13,665
 



Note 8 – Other Borrowings
The Company has certain borrowing arrangements with various financial institutions that are used in the Company’s operations primarily to fund growth in earning assets when appropriate spreads can be realized.  At June 30, 2008, total other borrowings amounted to $133.0 million compared to $105.5 million at June 30, 2007.  The majority of these balances are comprised in the Company’s borrowing relationship with the FHLB of Atlanta.  Total borrowings at the FHLB were $128.0 million and $69.5 million at June 30, 2008 and 2007, respectively.   

Note 9 – Commitments and Contingencies
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and standby letters of credit.  These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.  The Company uses the same credit policies in making commitments and conditional obligations as are used for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company issues standby letters of credit, which are conditional commitments issued to guarantee the performance of a customer to a third party.  Those guarantees are primarily issued to support public and private borrowing arrangements and expire in decreasing amounts with varying terms.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Company holds various assets as collateral supporting those commitments for which collateral is deemed necessary.

The Company evaluates each customer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower.  Collateral held may include accounts receivable, inventory, property, plant and equipment, residential real estate, and income-producing commercial properties on those commitments for which collateral is deemed necessary.

The following represent the Company’s commitments to extend credit and standby letters of credit:

(dollars in thousands)
 
June 30, 2008
   
June 30, 2007
 
             
Commitments to extend credit
 
$
170,576
   
$
206,590
 
                 
Standby letters of credit
 
$
6,183
   
$
6,719
 
 



Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Certain of the statements made in this report are “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended, 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, legislative and regulatory initiatives; additional competition in Ameris’ markets; potential business strategies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by Ameris; state and federal banking regulations; changes in or application of environmental and other laws and regulations to which Ameris is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather, natural disasters and other catastrophic events; and other factors discussed in Ameris’ filings with the Securities and Exchange 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.


 



The following table sets forth unaudited selected financial data for the previous five quarters.  This data should be read in conjunction with the consolidated financial statements and the notes thereto and the information contained in this Item 2.

   
2008
   
2007
 
(in thousands, except share data, taxable equivalent)
 
Second Quarter
   
First Quarter
   
Fourth Quarter
   
Third Quarter
   
Second Quarter
 
Results of Operations:
                             
Net interest income
 
$
19,056
   
$
18,460
   
$
19,248
   
$
19,081
   
$
18,330
 
Net interest income (tax equivalent)
   
19,514
     
18,814
     
19,009
     
19,257
     
18,722
 
Provision for loan losses
   
3,720
     
3,200
     
6,914
     
2,964
     
936
 
Non-interest income
   
5,313
     
4,842
     
3,833
     
4,591
     
4,643
 
Non-interest expense
   
15,961
     
15,640
     
15,502
     
15,170
     
13,780
 
Net income
   
3,149
     
2,966
     
1,186
     
3,570
     
5,373
 
Selected Average Balances:
                                       
Loans, net of unearned income
 
$
1,650,781
   
$
1,617,991
   
$
1,605,006
   
$
1,569,906
   
$
1,511,333
 
Investment securities
   
307,304
     
291,708
     
297,380
     
299,925
     
301,848
 
Earning assets
   
1,976,321
     
1,933,179
     
1,924,212
     
1,896,044
     
1,862,381
 
Assets
   
2,141,940
     
2,115,561
     
2,112,579
     
2,069,715
     
2,030,018
 
Deposits
   
1,764,067
     
1,748,961
     
1,725,383
     
1,695,239
     
1,693,020
 
Shareholders’ equity
   
192,605
     
193,971
     
191,124
     
187,290
     
185,177
 
Period-End Balances:
                                       
Loans, net of unearned income
 
$
1,678,147
   
$
1,622,437
   
$
1,614,048
   
$
1,593,014
   
$
1,556,862
 
Earning assets
   
2,009,873
     
1,924,415
     
1,917,240
     
1,917,901
     
1,873,846
 
Total assets
   
2,193,021
     
2,118,243
     
2,112,063
     
2,103,139
     
2,049,073
 
Total deposits
   
1,770,861
     
1,784,291
     
1,757,265
     
1,707,855
     
1,695,185
 
Shareholders’ equity
   
192,555
     
196,308
     
191,249
     
188,596
     
184,099
 
Per Common Share Data:
                                       
Basic earnings per share
 
$
0.23
   
$
0.22
   
$
0.09
   
$
0.26
   
$
0.40
 
Diluted earnings per share
   
0.23
     
0.22
     
0.09
     
0.26
     
0.39
 
Book value per share
   
14.20
     
14.48
     
14.12
     
13.93
     
13.60
 
End of period shares outstanding
   
13,564,032
     
13,556,770
     
13,539,985
     
13,539,195
     
13,541,476
 
Weighted average shares outstanding
                                       
Basic
   
13,510,907
     
13,497,344
     
13,485,765
     
13,501,663
     
13,485,683
 
Diluted
   
13,563,032
     
13,559,761
     
13,573,626
     
13,620,069
     
13,663,072
 
Market Price:
                                       
High Closing Price
   
16.26
     
16.41
     
18.67
     
23.05
     
25.58
 
Low Closing Price
   
8.70
     
12.49
     
13.73
     
17.72
     
21.76
 
Closing Price for Quarter
   
8.70
     
16.06
     
16.85
     
18.08
     
22.47
 
Trading volume (avg daily)
   
62,739
     
61,780
     
51,604
     
50,547
     
38,941
 
Cash dividends per share
   
0.14
     
0.14
     
0.14
     
0.14
     
0.14
 
Price to earnings
   
9.45
     
18.25
     
15.18
     
12.38
     
14.40
 
Price to book value
   
0.61
     
1.11
     
1.19
     
1.30
     
1.65
 
Performance Ratios:
                                       
       Return on average assets
   
0.59
%
   
0.56
%
   
0.23
%
   
0.68
%
   
1.06
%
       Return on average equity
   
6.58
%
   
6.15
%
   
2.48
%
   
7.56
%
   
11.64
%
       Loans/Deposits (average)
   
93.58
%
   
92.51
%
   
93.02
%
   
92.61
%
   
89.27
%
Net interest margin (tax equivalent)
   
3.96
%
   
3.91
%
   
3.92
%
   
4.03
%
   
4.03
%
Equity/Assets (average)
   
8.99
%
   
9.27
%
   
9.06
%
   
9.04
%
   
9.12
%
Efficiency ratio
   
65.50
%
   
67.12
%
   
67.21
%
   
64.08
%
   
59.98
%




Overview
The following is management’s discussion and analysis of certain significant factors which have affected the financial condition and results of operations of the Company as reflected in the unaudited consolidated statement of condition as of June 30, 2008 as compared to December 31, 2007 and operating results for the three-month and six-month periods ended June 30, 2007.  These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.
 
Results of Operations for the Three Months Ended June 30, 2008 and 2007

Consolidated Earnings and Profitability
Ameris reported net income of $3.1 million, or $0.23 per share, for the quarter ended June 30, 2008, compared to net income for the same quarter in 2007 of $5.4 million, or $0.39 per share.  The Company’s return on average assets and average shareholders’ equity declined in the second quarter of 2008 to 0.59% and 6.58%, respectively, compared to 1.06% and 11.64% in the second quarter of 2007.  Declines in credit quality and lower net interest margins were the primary reasons for the declines in earnings and profitability levels.

Net Interest Income and Margins
Net interest income for the second quarter of 2008 was $19.0 million, a 3.9% increase compared to the same quarter in 2007.  While the Company’s net interest income increased slightly, the net interest margin declined reflecting the recent declines in short-term rates.  The Company’s net interest margin declined to 3.96% at the end of the second quarter compared to 4.03% in the same period of 2007.

Interest income during the second quarter of 2008 was $32.2 million compared to $35.8 million in the same quarter of 2007.  Yields on earning assets also fell, declining from 7.80% in the second quarter of 2007 to 6.64% in the second quarter of 2008.  Yields on loans led overall yields lower, declining to 6.97% in the second quarter compared to 8.46% in the same period in 2007.  Declines in loan yields were primarily related to declines in variable loans as fixed rate loans declined only marginally.  At the end of the second quarter, yields on the Company’s variable loan portfolio had decreased to 5.99%, compared to 8.75% for the same quarter of 2007.  When compared to the second quarter of 2007, yields on fixed rate loans in the second quarter of 2008 declined to 7.69% from 8.14%.  Fixed rate loans account for approximately 47.60% of the total portfolio.

Interest expense also declined significantly, offsetting the majority of declines in interest income.  Total interest expense in the second quarter of 2008 amounted to $13.2 million, reflecting a decline of 24.66% from the same quarter in 2007.  The Company’s cost of funding declined to 2.74% in the current quarter from 3.84% reported during the second quarter of 2007.  Yields on the Company’s CD portfolio declined to 4.26% in the second quarter of 2008 compared to 5.08% in the same quarter of 2007.  In addition to CDs, the Company’s non-deposit funding declined significantly.  Yields on non-deposit borrowing in the second quarter of 2008 were 2.10% compared to 5.81% in the second quarter of 2007.  Declines in the costs of non-deposit borrowings relate mostly to favorable structures in the Company’s borrowings from the FHLB.

Provision for Loan Losses and Credit Quality
The Company’s provision for loan losses during the second quarter of 2008 amounted to $3.7 million compared to $936,000 for the same quarter of 2007.  The increase in the provision was related to continued credit quality declines in several of the Bank’s markets.  Non-performing assets as a percentage of loans and OREO increased to 2.09% at June 30, 2008 compared to 1.17% at June 30, 2007.  A severe slowdown in real estate activity (sales and valuations) centered primarily in our north Florida markets has exposed weaker borrowers and stressed the financial condition of stronger borrowers.  Strengthening the underlying controls and risk management systems around credit quality has been a priority for the past several quarters and continues today.  These efforts compound the efforts already underway to remove weaker borrowers from the balance sheet and to aggressively work non-performing assets.  The Company believes that these efforts will ultimately yield to a moderating and improving trend on credit quality but understands that a stronger real estate market is required.

Net charge-offs in the second quarter of 2008 amounted to $3.1 million, or annualized 0.75% of total loans compared to $1.0 million, or 0.26%, in the second quarter of 2007.  Net charge-offs in the second quarter of 2008 were centered in our north Florida markets on loans that were identified as weaker credits or loans with deficiencies prior to December 31, 2007.

Noninterest Income
Noninterest income in the second quarter of 2008 increased to $5.3 million from $4.6 million in the same quarter of 2007.  Service charges on deposit accounts increased approximately $598,000 to $3.7 million in the current quarter.  These increases were primarily the result of significantly more transaction accounts becoming subject to fees and charges and continued efforts to increase service charges where appropriate.  In addition to increases in service charges, income from mortgage banking activities increased 7.0% to $855,000.  Increases in mortgage related income was primarily the result of continued expansion in the Company’s staff of producers in the second half of 2007.

Noninterest Expense
Noninterest expenses in the second quarter of 2008 increased to $16.0 million compared to $13.8 million in the same quarter of 2007.  Salaries and benefits increased 15.58% to $8.7 million during the second quarter when compared to the same period a year ago.  The Company’s continued expansion in South Carolina and Jacksonville, Florida contributed to a larger than normal 22.4% increase in premises and equipment expense to end the quarter at $2.1 million.  Other operating expenses increased approximately $604,000 to $4.3 million in the second quarter of 2008 when compared to the second quarter of 2007.  These increases are the result of increased expenses associated with non-performing assets as well as increases in advertising and marketing expenses.

Income taxes
Income taxes in the second quarter amounted to $1.5 million, an effective rate of 32.8%, compared to $2.9 million and 34.9%, respectively, in the same quarter of 2007. 

 
Results of Operations for the Six Months Ended June 30, 2008 and 2007

Interest Income
Interest income for the six months ended June 30, 2008 was $66.3 million, a decline of 6.9%, compared to $71.2 million for the same period in 2007.  Average earning assets for the six month period increased 5.6%, to $1.95 billion as of June 30, 2008 compared to $1.85 billion as of June 30, 2007.  Yield on average earning assets declined 92 basis points to 6.91% from 7.83% for the six months ended June 30, 2008 and 2007, respectively.

Interest Expense
Total interest expense for the six months ended June 30, 2008 amounted to $28.8 million, reflecting a decline of 16.4% from the same period of 2007.  During the six month period ended June 30, 2008, the Company’s cost of funding declined to 3.02% from 3.81% reported in the previous year.  In the same period, yields on the Company’s CD portfolio fell to 4.52% compared to 5.06% for the six months period ended June 30, 2008.  The Company’s non-deposit funding declined significantly to 2.93% from 5.75% in the first half of 2007.

Net Interest Income
Net interest income for the six months ended June 30, 2008 increased $767,000, or 2.0%, to $37.5 million compared to $36.7 million for the same period ending June 30, 2007.  The Company’s net interest margin decreased to 3.94% for the six months ended June 30, 2008 compared to 4.07% as of June 30, 2007.

Provision for Loan Losses
The provision for loan losses rose notably to $6.9 million for the six months ended June 30, 2007 compared to $1.4 million in the same period in 2007.  Total non-performing assets increased to $35.1 million at June 30, 2008 from $18.2 million at June 30, 2007.   For the six month period ending June 30, 2008, Ameris had net charge-offs of $5.9 million compared to $1.3 million for the same period in 2007. 
 
Noninterest Income
Noninterest income for the first six months of 2008 rose $988,000, or 10.7%, to $10.2 million, compared to the year ago period.  Service charges on deposit accounts increased 17.5%, or $1.0 million, to end the six month period at $7.0 million.  Mortgage banking activities include origination fees, service release premiums and gain on the sales of mortgage loans held-for-sale. Mortgage banking activities for the six months ended June 30, 2008 totaled $1.7 million, an increase of $243,000, or 16.4%, compared to mortgage banking activities of $1.5 million in the six months ended June 30, 2007.  
 
Noninterest Expense
Non-interest expense for the first six months of 2008 was $31.6 million.  This represents a $3.3 million increase over the prior year period which totaled $28.2 million.  Salaries and employee benefits of $17.2 million for the six months ended June 30, 2008 were $2.0 million higher than the $15.2 million reported for the same period in 2007.  The majority of this increase is attributable to new hires across the Company’s growth markets. Occupancy and equipment expense increased $701,000 to $4.1 million for the six months ended June 30, 2008 compared to the same period of 2007 as a result of new branch offices, primarily in South Carolina and Jacksonville, Florida.  Marketing and advertising expense increased during the first half of 2008 to $1.2 million, an increase of approximately $700,000 when compared to the same period in 2007.  This increase relates to aggressive marketing campaigns in new and existing markets and is partially the cause of increases in mortgage and service charge revenues.   At the end of the first six months of 2008, collection expense related to problem loans more than doubled to $520,000 from $200,000 from the same period ended June 30, 2007.


Income Taxes
For the six months ended June 30, 2008 and 2007, the provision for taxes was $3.0 million and $5.9 million, respectively. The effective tax rate for the six months ended June 30, 2008 was 33.1% compared to 36.0% for the same period in 2007. The amount of income tax expense is influenced by the amount of taxable income and the amount of tax-exempt income.  Decreases in the tax expense directly correspond to the decrease in taxable income reported at the end of the first six months of 2008 compared to the first six months of 2007.



Short-Term Investments
The Company’s short-term investments are comprised of federal funds sold and interest bearing balances.  At June 30, 2008, the Company’s short-term investments were $38.1 million, compared to $12.0 million and $16.3 million at December 31, 2007 and June 30, 2007, respectively.  These balances have historically been distributed between deposits held by the Federal Home Loan Bank, IPS balances and bank owned CDs.  Due to the interest rate environment, the Company has moved from having approximately 28-23% of short-term investments in IPS to have zero IPS balances at June 30, 2008.   The type and amount of total short-term investments has changed as Management shifted earning assets into higher yielding instruments.


Other Borrowings
At June 30, 2008, total other borrowings amounted to $133.0 million compared to $90.5 million and $105.5 million at December 31, 2007 and June 30, 2007, respectively.  The majority of these balances are comprised in the Company’s borrowing relationship with the FHLB of Atlanta.  Total borrowings at the FHLB were $128.0 million, $85.5 million and $69.5 million at June 30, 2008, December 31, 2007 and June 30, 2007, respectively.  Due to changes in the interest rate environment, the Company has been shifting its sources of leverage in an attempt to adjust the Company’s borrowings into the most favorable position, which has resulted in the change of the three periods.


Capital
Capital management consists of providing equity to support both current and anticipated future operations.  The Company is subject to capital adequacy requirements imposed by the Federal Reserve Board (the “FRB”) and the Georgia Department of Banking and Finance (the “GDBF”), and the Bank is subject to capital adequacy requirements imposed by the Federal Deposit Insurance Corporation (the “FDIC”) and the GDBF.

The FRB, the FDIC and the GDBF have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy.  These standards define and establish minimum capital requirements in relation to assets and off-balance sheet exposure, adjusted for credit risk.  The risk-based capital standards currently in effect are designed to make regulatory capital requirements more sensitive to differences in risk profiles among bank holding companies and banks and to account for off-balance sheet exposure.

The minimum requirements established by the regulators for the Bank are set forth in the table below along with the actual ratios at June 30, 2008 and 2007.


 
Well Capitalized Requirement
Adequately Capitalized Requirement
 
June 30, 2008 Actual
 
June 30, 2007 Actual
Tier 1 Capital (to Average Assets)
5%
4%
   
8.55
%
   
8.59
%
Tier 1 Capital (to Risk Weighted Assets)
6%
4%
   
10.24
%
   
10.74
%
Total Capital (to Risk Weighted Assets)
10%
8%
   
11.50
%
   
11.99
%



Loans and Allowance for Loan Losses
At June 30, 2008, gross loans outstanding were $1.68 billion, an increase of $121.3 million, or 7.8%, over gross loans at June 30, 2007. The growth in the loan portfolio was attributable to a consistent focus on quality loan production and expansion into faster growing markets over the past few years.  The Company regularly monitors the composition of the loan portfolio to evaluate the adequacy of the allowance for loan losses in light of the impact that changes in the economic environment may have on the loan portfolio.

The Company focuses on the following loan categories: (1) commercial, financial & agricultural, (2) residential real estate, (3) commercial and farmland real estate, (4) construction and development related real estate, and (5) consumer.  The Company’s management has strategically located its branches in south and southeast Georgia, north Florida, southeast Alabama and the state of South Carolina and has taken advantage of the growth in these areas.

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.  The Company’s management has established an allowance for loan losses which it believes is adequate for the risk of loss inherent in the loan portfolio.  Based on a credit evaluation of the loan portfolio, management presents a monthly review of the allowance for loan losses to the Company’s Board of Directors.  The review that management has developed primarily focuses on risk by evaluating individual loans in certain risk categories.  These categories have also been established by management and take the form of loan grades.   By grading the loan portfolio in this manner the Company’s management is able to effectively evaluate the portfolio by risk, which management believes is the most effective way to analyze the loan portfolio and thus analyze the adequacy of the allowance for loan losses.  The Company’s reserve for loan losses is completely allocated to individual loans through this grading system.

The Company’s risk management processes include a loan review program designed to evaluate the credit risk in the loan portfolio and insure credit grade accuracy.  Through the loan review process, the Company maintains a loan portfolio summary analysis, charge-off and recoveries analysis, trends in accruing problem loan analysis, and problem and past due loan analysis which serve as tools to assist management in assessing the overall quality of the loan portfolio and the adequacy of the allowance for loan losses.  Loans classified as “substandard” are loans which are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged.  These assets exhibit a well-defined weakness or are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.  These weaknesses may be characterized by past due performance, operating losses and/or questionable collateral values.  Loans classified as “doubtful” are those loans that have characteristics similar to substandard loans but have an increased risk of loss.  Loans classified as “loss” are those loans which are considered uncollectible and are in the process of being charged-off.

The allowance for loan losses is established by examining (1) the large classified loans, nonaccrual loans and loans considered impaired and evaluating them individually to determine the specific reserve allocation, and (2) the remainder of the loan portfolio to allocate a portion of the allowance based on past loss experience and the economic conditions for the particular loan category.  The Company will also consider other factors such as changes in lending policies and procedures; changes in national, regional, and/or local economic and business conditions; changes in the nature and volume of the loan portfolio; changes in the experience, ability and depth of either the bank president or lending staff; changes in the volume and severity of past due and classified loans; changes in the quality of the Company’s corporate loan review system; and other factors management deems appropriate.  Historically, we believe our estimates of the level of allowance for loan losses required have been appropriate and our expectation is that the primary factors considered in the provision calculation will continue to be consistent with prior trends.





For the six month period ending June 30, 2008, the Company recorded net charge-offs totaling $5.9 million compared to $1.2 million for the same period in 2007.  The provision for loan losses for the six months ended June 30, 2008 and 2007 was $6.9 million and $1.4 million, respectively.  The allowance for loan losses totaled $28.6 million, or 1.71% of total loans at June 30, 2008, compared to $25.0 million, or 1.61% of total loans at June 30, 2007.

The following table presents an analysis of the allowance for loan losses for the six month periods ended June 30, 2008 and 2007:
 

(dollars in thousands)
 
June 30, 2008
 
June 30, 2007
Balance of allowance for loan losses at beginning of period
 
$
27,640
   
$
24,863
 
Provision charged to operating expense
   
6,920
     
1,444
 
Charge-offs:
               
    Commercial, financial & agricultural
   
673
     
404
 
    Real estate – residential
   
1,574
     
574
 
    Real estate – commercial & farmland
   
348
     
504
 
    Real estate – construction & development
   
3,624
     
405
 
    Consumer installment
   
527
     
228
 
     Other
   
-
     
-
 
                Total charge-offs
   
6,745
     
2,114
 
Recoveries:
               
    Commercial, financial & agricultural
   
120
     
453
 
    Real estate – residential
   
115
     
67
 
    Real estate – commercial & farmland
   
99
     
101
 
    Real estate – construction & development
   
356
     
1
 
    Consumer installment
   
154
     
217
 
    Other
   
-
     
-
 
         Total recoveries
   
845
     
839
 
Net charge-offs
   
5,900
     
1,275
 
Balance of allowance for loan losses at end of period
 
$
28,660
   
$
25,032
 
Net annualized charge-offs as a percentage of average loans
   
0.70
%
   
0.16
%
Reserve for loan losses as a percentage of loans at end of period
   
1.71
%
   
1.61
%
 



Non-Performing Assets
Non-performing assets include nonaccrual loans, accruing loans contractually past due 90 days or more, repossessed personal property, and other real estate.  Loans are placed on nonaccrual status when management has concerns relating to the ability to collect the principal and interest and generally when such loans are 90 days or more past due.  A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract.  When a loan is placed on nonaccrual status, any interest previously accrued but not collected is reversed against current income.  Non-performing assets increased $9.7 million during the quarter ending June 30, 2008 when compared to the quarter ending December 31, 2007, to end at $35.1 million .  Non-performing assets as a percentage of loans and repossessed collateral were 2.09% and 1.57% at June 30, 2008 and December 31, 2007, respectively.
 
Slowing real estate activity in some of the Company’s markets has altered the Company’s risk profile.  These markets are centered primarily in northern Florida and include Jacksonville, Gainesville and Crawfordville, Florida.  Deteriorating credit quality has been the result of development or construction loans in areas where there was significant speculation on real estate.  As the speculation diminished and secondary market liquidity became more scarce, many of the planned projects were slower to develop or sell.  Certain borrowers did not have the liquidity necessary to withstand a severe downturn in the market place but do have sufficient equity in the project that ultimately limits the Company’s potential loss.  The Company anticipates continued stress on its borrowers in these markets until real estate activity increases.

Non-performing assets were as follows:

(dollars in thousands)
 
June 30, 2008
   
December 31, 2007
 
Total nonaccrual loans
 
$
32,106
   
$
18,468
 
Accruing loans delinquent 90 days or more
   
-
     
-
 
Other real estate owned and repossessed collateral
   
3,032
     
6,991
 
Total non-performing assets
 
$
35,138
   
$
25,459
 
 
 



Commercial Lending Practices
On December 12, 2006, the Federal Bank Regulatory Agencies released guidance on Concentration in Commercial Real Estate Lending.  This guidance defines CRE loans as loans secured by raw land, land development and construction (including 1-4 family residential construction), multi-family property, and non-farm nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property, excluding owner occupied properties (loans for which 50% or more of the source of repayment is derived from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property) or the proceeds of the sale, refinancing, or permanent financing of the property.  Loans for owner occupied CRE are generally excluded from the CRE guidance. 
 
The CRE guidance is applicable when either:
 
    (a) Total loans for construction, land development, and other land, net of owner occupied loans, represent 100% or more of a bank’s total risk-based capital; or
    (b) Total loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land development, and other land, net of owner occupied
                  loans, represent 300% or more of a bank’s total risk-based capital.

Banks that are subject to the CRE guidance’s criteria will need to implement enhanced strategic planning, CRE underwriting policies, risk management and internal controls, portfolio stress testing, risk exposure limits, and other policies, including management compensation and incentives, to address the CRE risks.  Higher allowances for loan losses and capital levels may also be appropriate.
 
As of June 30, 2008, the Company exhibited a concentration in commercial real estate (CRE) loans.  The primary risks of CRE lending are:
   
    (a) Within CRE loans, construction and development loans are somewhat dependent upon continued strength in demand for residential real estate, which is reliant on
                  favorable real estate mortgage rates and changing population demographics;
    (b) On average, CRE loan sizes are generally larger than non-CRE loan types; and
    (c) Certain construction and development loans may be less predictable and more difficult to evaluate and monitor.
 
The following table outlines CRE loan categories and CRE loans as a percentage of total loans as of June 30, 2008 and December 31, 2007.


 (dollars in thousands)
 
June 30, 2008
   
December 31, 2007
 
         
% of Total