10-Q 1 form10q0609.htm AMERIS BANCORP 10Q 0609 form10q0609.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, 2009

OR

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

Commission File Number:   001-13901

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

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

310 FIRST STREET, S.E., 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 has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o 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 13,580,985 shares of Common Stock outstanding as of July 31, 2009.
-1-

AMERIS BANCORP

 
PART I - FINANCIAL INFORMATION
Page
Item 1.
Financial Statements
 
 
3
     
 
4
     
 
5
     
 
6
     
Item 2.
21
     
Item 3.
38
     
Item 4.
39
     
PART II - OTHER INFORMATION
 
Item 1.
40
     
Item 1A.
40
     
Item 2.
40
     
Item 3.
40
     
Item 4.
41
     
Item 5.
41
     
Item 6.
41
     
 
42
     
     
     
     
     

-2-

 

Item 1.
 Financial Statements

AMERIS BANCORP AND SUBSIDIARIES
 
 
(Dollars in Thousands)
 
                   
   
June 30,
   
December 31,
   
June 30,
 
   
2009
   
2008
   
2008
 
   
(Unaudited)
   
(Audited)
   
(Unaudited)
 
Assets
                 
Cash and due from banks
 
$
46,773
   
$
66,787
   
$
47,720
 
Federal funds sold and interest bearing accounts
   
163,343
     
144,383
     
38,125
 
Investment securities available for sale, at fair value
   
257,771
     
366,106
     
291,813
 
Other investments
   
4,441
     
8,627
     
 9,651
 
                         
Loans
   
1,677,045
     
1,695,777
     
1,678,147
 
    Less: allowance for loan losses
   
44,998
     
39,652
     
28,660
 
Loans, net
   
1,632,047
     
1,656,125
     
1,649,487
 
                         
Premises and equipment, net
   
67,334
     
66,107
     
63,291
 
Intangible assets, net
   
3,339
     
3,631
     
4,217
 
Goodwill
   
54,813
     
54,813
     
54,813
 
Other real estate owned              19,180                   4,742                  2,222  
Other assets
   
36,204
     
35,769
     
31,682
 
       Total assets
 
$
2,285,245
   
$
2,407,090
   
$
2,193,021
 
                         
Liabilities and Stockholders' Equity
                       
Deposits:
                       
Noninterest-bearing
 
$
210,456
   
$
208,532
   
$
200,936
 
Interest-bearing
   
1,765,915
     
1,804,993
     
1,569,925
 
       Total deposits
   
1,976,371
     
2,013,525
     
1,770,861
 
Federal funds purchased and securities sold under agreements to repurchase
   
16,484
     
27,416
     
39,795
 
Other borrowings
   
7,000
     
72,000
     
133,000
 
Other liabilities
   
9,967
     
12,521
     
14,541
 
Subordinated deferrable interest debentures
   
42,269
     
42,269
     
42,269
 
       Total liabilities
   
2,052,091
     
2,167,731
     
2,000,466
 
                         
Stockholders' Equity
                       
Preferred stock, par value$1; 5,000,000 shares authorized; 52,000 shares issued
   
49,279
     
49,028
     
-
 
Common stock, par value $1; 30,000,000 shares authorized; 14,915,209, 14,865,703 and 14,886,967 issued
   
14,915
     
14,866
     
14,895
 
Capital surplus
   
86,286
     
86,038
     
83,308
 
Retained earnings
   
87,451
     
93,696
     
105,430
 
Accumulated other comprehensive income
   
6,033
     
6,518
     
(291
)
Treasury stock, at cost, 1,334,030, 1,331,102 and 1,330,197 shares
   
(10,810
)
   
(10,787
)
   
(10,787
)
       Total stockholders' equity
   
233,154
     
239,359
     
192,555
 
       Total liabilities and stockholders' equity
 
$
2,285,245
   
$
2,407,090
   
$
2,193,021
 
 See notes to unaudited consolidated financial statements

-3-

 
 
AMERIS BANCORP AND SUBSIDIARIES
 
 
(dollars in thousands, except per share data)
 
(Unaudited)
 
                         
                         
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Interest Income
                       
Interest and fees on loans
 
$
25,829
   
$
28,339
   
$
51,556
   
$
58,472
 
Interest on taxable securities
   
2,906
     
3,646
     
6,563
     
7,228
 
Interest on nontaxable securities
   
255
     
173
     
422
     
346
 
Interest on deposits in other banks and federal funds sold
   
110
     
91
     
176
     
291
 
      Total Interest Income
   
29,100
     
32,249
     
58,717
     
66,337
 
                                 
Interest Expense
                               
Interest on deposits
   
10,030
     
12,314
     
22,185
     
26,456
 
Interest on other borrowings
   
531
     
879
     
1,025
     
2,366
 
      Total Interest Expense
   
10,561
     
13,193
     
23,210
     
28,822
 
                                 
     Net Interest Income
   
18,539
     
19,056
     
35,507
     
37,715
 
Provision for Loan Losses
   
9,390
     
3,720
     
17,302
     
6,920
 
     Net Interest Income After Provision for Loan Losses
   
9,149
     
15,336
     
18,205
     
30,595
 
                                 
Noninterest Income
                               
Service charges on deposit accounts
   
3,393
     
3,664
     
6,428
     
6,980
 
Mortgage banking activity
   
877
     
855
     
1,640
     
1,725
 
Other service charges, commissions and fees
   
77
     
220
     
140
     
498
 
Gain on sale of securities
   
101
     
-
     
814
     
-
 
Other noninterest income
   
148
     
588
     
1,070
     
953
 
     Total Noninterest Income
   
4,596
     
5,327
     
10,092
     
10,156
 
                                 
Noninterest Expense
                               
Salaries and employee benefits
   
7,899
     
8,660
     
15,890
     
17,278
 
Equipment and occupancy expenses
   
2,224
     
2,103
     
4,382
     
4,095
 
Amortization of intangible assets
   
147
     
293
     
293
     
585
 
Data processing and telecommunications expenses
   
1,704
     
1,655
     
3,331
     
3,179
 
Advertising and marketing expenses
   
439
     
656
     
1,013
     
1,534
 
Other non-interest expenses
   
5,316
     
2,609
     
8,547
     
4,931
 
     Total Noninterest Expense
   
17,729
     
15,976
     
33,456
     
31,602
 
                                 
     (Loss)/Income Before Tax (Benefit)/Expense
   
(3,984
)
   
4,687
     
(5,159
)
   
9,149
 
Applicable Income Tax (Benefit)/Expense
   
(1,290
)
   
1,538
     
(1,829
)
   
3,034
 
     Net (Loss)/Income
 
$
(2,694
)
 
$
3,149
   
$
(3,330
)
 
$
6,115
 
                                 
Preferred Stock Dividends
   
665
     
-
     
1,254
     
-
 
     Net (Loss)/Income Available to Common Shareholders
   
(3,359
)
   
3,149
     
(4,584
)
   
6,115
 
                                 
 Other Comprehensive Income                                
Unrealized holding gain/(loss) arising during period on investment securities available for sale, net of tax  
   
(1,774
)
   
(4,447
)
   
(1,195
)
   
(1,770
)
Unrealized gain/(loss) on cash flow hedges arising during period , net of tax
   
917
     
(1,344
)
   
1,239
     
249
 
Reclassification adjustment for (gains) included in net income, net of tax
   
(66
)
   
-
     
(529
)
   
-
 
Comprehensive Income
 
$
(4,282
)
 
$
(2,642
)
 
$
(5,069
)
 
$
4,594
 
                                 
Basic (loss)/earnings per share
 
$
(0.25
)
 
$
0.23
   
$
(0.34
)
 
$
0.45
 
Diluted (loss)/earnings per share
 
$
(0.25
)
 
$
0.23
   
$
(0.34
)
 
$
0.45
 
                                 
      Weighted Average Common Shares Outstanding
                               
     Basic
   
13,524
     
13,511
     
13,526
     
13,558
 
     Diluted
   
13,524
     
13,563
     
13,526
     
13,561
 
                                 
Dividends declared per share
 
$
0.05
   
$
0.14
   
$
0.10
   
$
0.28
 
 
See notes to unaudited consolidated financial statements.
-4-

 

AMERIS BANCORP AND SUBSIDIARIES
 
 
(Dollars in Thousands)
 
(Unaudited)
 
   
Six Months Ended
 
   
June 30,
 
   
2009
   
2008
 
Cash Flows From Operating Activities:
           
Net Income/(Loss)
 
$
(3,330
)
 
$
6,115
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
   
1,808
     
1,570
 
Net (gains)/losses on sale or disposal of premises and equipment
   
96
 
   
(34
)
Net (gains)/losses on sale of other real estate owned
   
782
     
(329
)
Provision for loan losses
   
17,302
     
6,920
 
Amortization of intangible assets
   
293
     
585
 
Net gains on securities available for sale      (794 )    
 -
 
Other prepaids, deferrals and accruals, net
   
1,890
     
(795
)
      Net cash provided by operating activities
   
18,047
     
14,032
 
                 
                 
                 
Cash Flows From Investing Activities:
               
Net decrease in federal funds sold and interest bearing deposits
   
(18,960
)    
(26,103
)
Proceeds from maturities of securities available for sale
   
124,501
     
52,155
 
Purchase of securities available for sale
   
(48,191
)
   
(57,307
)
Proceeds from sales of securities available for sale
   
31,879
     
-
 
Net (increase)/decrease in loans
   
(13,503
)    
(75,562
)
Proceeds from sales of other real estate owned
   
5,060
     
10,333
 
Proceeds from sales of premises and equipment
   
1,647
     
350
 
Purchases of premises and equipment
   
(4,778
)
   
(7,664
)
      Net cash used in investing activities
   
77,655
     
(103,798
                 
                 
                 
Cash Flows From Financing Activities:
               
Net increase/(decrease) in deposits
   
(37,154
)    
13,596
 
Net (increase)/decrease in federal funds purchased and securities sold under agreements to repurchase
   
(10,932
)
   
25,090
 
Net increase/(decrease) in other borrowings
   
(65,000
)
   
42,500
 
Dividends paid - preferred stock
   
(1,254
)
   
-
 
Dividends paid – common stock
   
(1,358
)
   
(3,798
)
Purchase of treasury shares
   
(24
)    
(18
)
Proceeds from exercise of stock options
   
6
     
312
 
        Net cash provided by financing activities
   
(115,716
)
   
77,682
 
                 
Net decrease in cash and due from banks
 
$
(20,014
)
 
$
(12,084
)
                 
Cash and due from banks at beginning of period
   
66,787
     
59,804
 
                 
Cash and due from banks at end of period
 
$
46,773
   
$
47,720
 
 
See notes to unaudited consolidated financial statements.
-5-

 

AMERIS BANCORP AND SUBSIDIARIES
June 30, 2009
(Unaudited)
 
NOTE 1 – BASIS OF PRESENTATION AND 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 50 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, to minimize risk, 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 period ended June 30, 2009 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, 2008.

Certain amounts reported for the periods ended December 31, 2008 and June 30, 2008 have been reclassified to conform to the presentation as of June 30, 2009.  These reclassifications had no effect on previously reported net income or stockholders' equity.

-6-

Subsequent Events
The Company has evaluated all subsequent events through August 7, 2009, the date of this filing, and determined there are no material recognized or unrecognized subsequent events.
 
Newly Adopted Accounting Pronouncements
In  June 2009, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 168, The AFSB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162.  This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  Management does not anticipate it will have a material effect on the Company's consolidated financial condition or results of operations.
 
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R).  This statement amends certain requirements of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Inerest Entitities, to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements.  This Statement shall be effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter with earlier application prohibited.  Management does not anticipate it will have a material effect on the Company's consolidated financial condition or results of operations.
 
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140.  The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferors's continuing involvement in transferred financial assets.  This Statement must be applied as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter with earlier application prohibited.  This Statement must be applied to transfers occurring on or after the effective date.  Management does not anticipate it will have a material effect on the Company's consolidated financial condition or results of operations.
 
In May 2009, the FASB issued SFAS No. 165, Subsequent Events.  This Statement establishes principles and requirements for subsequent events, setting forth the period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date.  This statement is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively.  The adoption of this statement did not have a material effect on the Company's consolidated financial condition or results of operations.

-7-

In April 2009, the FASB issued FASB Staff Position ("FSP") FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are not Orderly. This FSP provides additional guidance for estimating fair value in accordance with FAS 157 when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly, emphasizing that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, and early adoption is permitted for periods ending after March 15, 2009.  The adoption of FSP 157-4 did not have a material effect on the Company's consolidated financial condition or results of operations.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP requires disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The adoption of FSP 107-1 and APB 28-1 did not have a material effect on the Company's consolidated financial condition or results of operations.

In April 2009, the FASB issued FSP 115-2 and 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. This FSP addresses the unique features of debt securities and clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. This FSP expands and increases the frequency of existing disclosures about other-than-temporary impairments for debt and equity securities. This FSP does not amend existing recognition and measurement guidance for other-than-temporary impairments. The FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009 is not permitted.  The adoption of FSP 115-2 and 124-2 did not have a material effect on the Company's consolidated financial condition or results of operations.

In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies. This FSP amends and clarifies FASB Statement No. 141 (revised 2007), Business Combinations, to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination.  This FSP is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  The adoption of 141(R)-1 did not have a material effect on the Company's consolidated financial condition or results of operations.

In January 2009, the FASB issued FSP No. 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20.  This FSP amends the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination of whether an other-than-temporary impairment has occurred.  The FSP also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance.  This FSP is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted.  The adoption of FSP No. 99-20-1 did not have a material effect on the Company's consolidated financial condition or results of operations.
 
-8-

In December 2008, the FASB issued FSP FAS 132(R)-1, Employers' Disclosures about Postretirement Benefit Plan Assets.  This FSP amends FASB Statement No. 132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employer's disclosures about plan assets of a defined benefit pension or other postretirement plan.  This FSP also includes a technical amendment to Statement 132(R) that requires a nonpublic entity to disclose net periodic benefit cost for each annual period for which a statement of income is presented.  This FSP is effective for fiscal years ending after December 15, 2009.  Management does not anticipate it will have a material effect on the Company's consolidated financial condition or results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133. This statement requires an entity to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is intended to enhance the current disclosure framework in SFAS 133, by requiring the objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation.

The goal of the Company’s interest rate risk management process is to minimize the volatility in the net interest margin caused by changes in interest rates. Derivative instruments are used to hedge certain assets or liabilities as a part of this process. The Company is required to recognize certain contracts and commitments as derivatives when the characteristics of those contracts and commitments meet the definition of a derivative. Under the guidelines of SFAS 133, as amended, all derivative instruments are required to be carried at fair value on the balance sheet.
 
The Company’s current hedging strategies involve utilizing interest rate floors and interest rate swaps classified as Cash Flow Hedges.  Cash flows related to floating-rate assets and liabilities will fluctuate with changes in an underlying rate index.  When effectively hedged, the increases or decreases in cash flows related to the floating rate asset or liability will generally be offset by changes in cash flows of the derivative instrument designated as a hedge.  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.  The change in fair value of the effective portion of cash flow hedges is accounted for in other comprehensive income.  The change in fair value of the ineffective portion of cash flow hedges would be reflected in the statement of income.

-9-

 


NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Continued)
 
 
At June 30, 2009, the Company had asset cash flow hedges with notional amounts totaling $107.1 million for the purpose of managing interest rate sensitivity.  These cash flow hedges included a LIBOR rate swap under which it pays a fixed rate and receives a variable rate.  In addition, the Company utilizes Prime interest rate floor contracts for the purpose of converting floating rate assets to fixed rate.  No hedge ineffectiveness from cash flow hedges was recognized in the statement of income.  All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

The following table presents the interest rate derivative contracts outstanding at June 30, 2009.

 
Type (Maturity)
 
Notional Amount
   
Rate Received
/Floor Rate
   
Rate Paid
 
Fair Value
 
   
(Dollars in Thousands)
 
LIBOR Swap (12/15/2018)
 
$
37,114
     
2.95
%
   
4.15
%
 
$
3,003
 
    Total Swaps:
   
37,114
     
2.95
     
4.15
     
3,003
 
                                 
Prime Interest Rate Floor (08/15/09)
   
35,000
     
7.00
     
-
     
231
 
Prime Interest Rate Floor (08/15/11)
   
35,000
     
7.00
     
-
     
2,380
 
    Total  Floors:
   
70,000
     
7.00
%
   
-
%
   
2,611
 
                                 
    Total  Derivative Contracts:
 
$
107,114
                   
$
5,614
 

-10-

 


NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation.  Fair value is best determined based upon quoted market prices.  However, in many instances, there are no quoted market prices for the Company's various financial instruments.  In cases where quoted market prices are not available, fair value is based on discounted cash flows or other valuation techniques.  These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.  SFAS No. 107, Disclosures about Fair Value of Financial Instruments, excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.  Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
 
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments and other accounts recorded based on their fair value:
 
Cash, Due From Banks, Interest-Bearing Deposits in Banks and Federal Funds Sold:  The carrying amount of cash, due from banks and interest-bearing deposits in banks and federal funds sold approximates fair value.
 
Securities Available For SaleThe 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.  Fair value of securities is based on available quoted market prices.  Federal Home Loan Bank (“FHLB”) stock is included in other investment securities at its original cost basis, as cost approximates fair value and there is no ready market for such investments.
 
Loans:  The carrying amount of variable-rate loans that reprice frequently and have no significant change in credit risk approximates fair value.  The fair value of fixed-rate loans is estimated based on discounted contractual cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality.  The fair value of impaired loans is estimated based on discounted contractual cash flows or underlying collateral values, where applicable.  A loan is determined to be impaired if the Company believes it is probable that all principal and interest amounts due according to the terms of the note will not be collected as scheduled.  The fair value of impaired loans is determined in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and generally results in a specific reserve established through a charge to the provision for loan losses.  Losses on impaired loans are charged to the allowance when management believes the uncollectability of a loan is confirmed.  Management has determined that the majority of impaired loans are Level 2 assets due to the extensive use of market appraisals.  To the extent that market appraisals or other methods do not produce reliable determinations of fair value, these assets are deemed to be Level 3.


-11-

 


NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Continued)

Deposits:  The carrying amount of demand deposits, savings deposits and variable-rate certificates of deposit approximates fair value.  The fair value of fixed-rate certificates of deposit is estimated based on discounted contractual cash flows using interest rates currently offered for certificates with similar maturities.

Repurchase Agreements and/or Other Borrowings:  The carrying amount of variable rate borrowings and securities sold under repurchase agreements approximates fair value. The fair value of  fixed rate other borrowings is estimated based on discounted contractual cash flows using the current incremental borrowing rates for similar type borrowing arrangements.

Subordinated Deferrable Interest Debentures: The carrying amount of the Company’s variable rate trust preferred securities approximates fair value.

Off-Balance-Sheet Instruments:  The carrying amount of commitments to extend credit and standby letters of credit approximates fair value.  The carrying amount of the off-balance-sheet financial instruments is based on fees charged to enter into such agreements.

Derivatives: The Company’s current hedging strategies involve utilizing interest rate floors and interest rate swaps. 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 and ongoing tests of effectiveness.  As of June 30, 2009, the Company had cash flow hedges with a notional amount of $107.1 million.
 
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.  Management has determined that in most cases the valuation method for other real estate produces reliable estimates of fair value and has classified these assets as Level 2.

The carrying amount and estimated fair value of the Company's financial instruments, not shown elsewhere in these financial statements, were as follows:

 
 
June 30, 2009
 
December 31, 2008
 
   
Carrying
 
Fair
 
Carrying
   
Fair
 
 
 
Amount
 
Value
 
Amount
   
Value
 
   
(Dollars in Thousands)
 
Financial assets:
                   
Loans, net
 
$
1,632,047
 
$
1,644,118
 
$
1,656,125
   
$
1,671,499
 
                             
Financial liabilities:
                           
Deposits
   
1,976,371
   
1,982,813
   
2,013,525
     
2,019,964
 
Other borrowings
   
7,000
   
7,088
   
72,000
     
71,545
 

 

-12-

 


NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Continued)
 
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”, (“SFAS 157”), 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 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.

 
-13-

NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES (Continued)
 
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 SFAS 157 fair value hierarchy in which the fair value measurements fall as of June 30, 2009.
 
   
Fair Value Measurements on a Recurring Basis
 
   
As of June 30, 2009
 
         
Quoted Prices
             
         
in Active
   
Significant
       
         
Markets for
   
Other
   
Significant
 
         
Identical
   
Observable
   
Unobservable
 
         
Assets
   
Inputs
   
Inputs
 
   
Fair Value
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
   
(Dollars in Thousands)
 
Securities available for sale
  $ 257,771     $ -     $ 255,771     $ 2,000  
Derivative financial instruments
    5,614       -       5,614       -  
     Total recurring assets at fair value
  $ 263,385     $ -     $ 261,385     $ 2,000  


Following is a description of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis, as well as the general classification of such instruments pursuant to the SFAS 157 valuation hierarchy.

   
Fair Value Measurements on a Nonrecurring Basis
 
   
As of June 30, 2009
 
         
Quoted Prices
             
         
in Active
   
Significant
       
         
Markets for
   
Other
   
Significant
 
         
Identical
   
Observable
   
Unobservable
 
         
Assets
   
Inputs
   
Inputs
 
   
Fair Value
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
   
(Dollars in Thousands)
 
Impaired loans carried at fair value
  $ 68,858     $ -     $ 68,858     $ -  
Other real estate owned
    19,180       -       18,980       200  
     Total nonrecurring assets at fair value
  $ 88,038     $ -     $ 87,838     $ 200  

 
Pursuant to SFAS 157, below is the Company’s reconciliation of Level 3 assets as of June 30, 2009.  Gains or losses on impaired loans are recorded in the provision for loan losses.

   
Investment
 Securities Available
for Sale
   
Impaired Loans
 
Beginning balance January 1, 2009
 
 $
2,000
   
 $
1,387
 
Total gains/(losses) included in net income
   
-
     
-
 
Purchases, sales, issuances, and settlements, net
   
-
     
(1,387
)
Transfers in or out of Level 3
   
-
     
-
 
Ending balance June 30, 2009
 
 $
2,000
   
 $
-
 

-14-

 

NOTE 2 – INVESTMENT SECURITIES

Ameris’ investment policy blends the Company’s liquidity needs and interest rate risk management with its desire to increase income and provide funds for expected growth in loans.  The investment securities portfolio consists primarily of U.S Government sponsored mortgage-backed securities and agencies, state and municipal securities and corporate debt securities.  Ameris’ portfolio and investing philosophy concentrate activities in obligations where the credit risk is limited.  For the small portion of Ameris’ portfolio 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, 2009, December 31, 2008 and June 30, 2008 are presented below:
 
 
       
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
   
(Dollars in Thousands)
 
                         
June 30, 2009:
                       
U. S. Government sponsored agencies
 
$
   40,138
   
$
524
   
$
(127)
   
$
  40,535
 
State and municipal securities
   
  38,347
     
    394
     
     (376)
     
      38,365
 
Corporate debt securities
   
    12,183
     
     51
     
    (1,832)
     
      10,402
 
Mortgage-backed securities
   
  163,330