10-Q 1 d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

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, 2010

OR

 

¨

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  ¨

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  ¨    No  ¨

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

 

¨

  

Accelerated filer

 

x

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

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  ¨    No  x

There were 23,625,065 shares of Common Stock outstanding as of August 3, 2010

 

 

 


Table of Contents

AMERIS BANCORP

TABLE OF CONTENTS

 

          Page

PART I – FINANCIAL INFORMATION

  

Item 1.

  

Financial Statements.

  
  

Consolidated Balance Sheets at June 30, 2010, December 31, 2009 and June 30, 2009

   1
  

Consolidated Statements of Operations and Comprehensive Income/(Loss) for the Three and Six Month Period Ended June 30, 2010 and 2009

   2
  

Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2010 and 2009

   4
  

Notes to Consolidated Financial Statements

   5

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

   17

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk.

   27

Item 4.

  

Controls and Procedures.

   27

PART II – OTHER INFORMATION

  

Item 1.

  

Legal Proceedings.

   28

Item 1A.

  

Risk Factors.

   28

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds.

   28

Item 3.

  

Defaults Upon Senior Securities.

   28

Item 4.

  

(Removed and Reserved).

   28

Item 5.

  

Other Information.

   28

Item 6.

  

Exhibits.

   28

Signatures

   29


Table of Contents

Item 1. Financial Statements.

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

 

     June 30,
2010
    December 31,
2009
    June 30,
2009
 
     (Unaudited)     (Audited)     (Unaudited)  

Assets

      

Cash and due from banks

   $ 54,444      $ 81,060      $ 46,773   

Federal funds sold and interest bearing accounts

     240,075        220,363        163,343   

Investment securities available for sale, at fair value

     237,764        245,556        257,771   

Other investments

     7,752        7,260        4,441   

Loans

     1,493,126        1,584,359        1,677,045   

Covered loans

     192,545        137,248        —     

Less: allowance for loan losses

     34,468        35,762        44,998   
                        

Loans, net

     1,651,204        1,685,845        1,632,047   

Other real estate

     41,079        23,316        19,180   

Covered other real estate

     25,845        9,337        —     

Total other real estate

     66,924        32,653        19,180   

FDIC indemnification asset

     59,179        45,840        —     

Premises and equipment, net

     66,708        67,637        67,334   

Intangible assets, net

     3,314        3,586        3,339   

Goodwill

     —          —          54,813   

Other assets

     34,546        34,170        36,204   
                        

Total assets

   $ 2,421,910      $ 2,423,970      $ 2,285,245   
                        

Liabilities and Stockholders’ Equity

      

Deposits:

      

Noninterest-bearing

   $ 218,012      $ 236,962      $ 210,456   

Interest-bearing

     1,862,014        1,886,154        1,765,915   
                        

Total deposits

     2,080,026        2,123,116        1,976,371   

Securities sold under agreements to repurchase

     17,600        55,254        16,484   

Other borrowings

     —          2,000        7,000   

Other liabilities

     7,145        6,367        9,967   

Subordinated deferrable interest debentures

     42,269        42,269        42,269   
                        

Total liabilities

     2,147,040        2,229,006        2,052,091   
                        

Stockholders’ Equity

      

Preferred stock, par value $1; 5,000,000 shares authorized; 52,000 shares issued

     49,832        49,552        49,279   

Common stock, par value $1; 30,000,000 shares authorized; 24,961,239, 15,379,131 and 15,339,131 issued

     24,961        15,379        15,339   

Capital surplus

     165,398        89,389        89,019   

Retained earnings

     37,665        44,216        84,293   

Accumulated other comprehensive income

     7,834        7,240        6,033   

Treasury stock, at cost, 1,334,234, 1,334,224 and 1,334,030 shares

     (10,820     (10,812     (10,810
                        

Total stockholders’ equity

     274,870        194,964        233,154   
                        

Total liabilities and stockholders’ equity

   $ 2,421,910      $ 2,423,970      $ 2,285,245   
                        

See notes to unaudited consolidated financial statements

 

1


Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)

(dollars in thousands, except per share data)

(Unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  

Interest Income

        

Interest and fees on loans

   $ 28,187      $ 25,829      $ 53,343      $ 51,556   

Interest on taxable securities

     2,502        2,906        4,964        6,563   

Interest on nontaxable securities

     299        255        603        422   

Interest on deposits in other banks and federal funds sold

     109        110        178        176   
                                

Total Interest Income

     31,097        29,100        59,088        58,717   
                                

Interest Expense

        

Interest on deposits

     7,084        10,030        14,416        22,185   

Interest on other borrowings

     154        531        400        1,025   
                                

Total Interest Expense

     7,238        10,561        14,816        23,210   
                                

Net Interest Income

     23,859        18,539        44,272        35,507   

Provision for Loan Losses

     18,608        9,390        29,378        17,302   
                                

Net Interest Income After Provision for Loan Losses

     5,251        9,149        14,894        18,205   
                                

Noninterest Income

        

Service charges on deposit accounts

     3,620        3,393        7,059        6,428   

Mortgage banking activity

     675        877        1,229        1,640   

Other service charges, commissions and fees

     232        77        445        140   

Gain on acquisitions

     8,208        —          8,208        —     

Gain on sale of securities

     —          101        200        814   

Other noninterest income

     313        148        793        1,070   
                                

Total Noninterest Income

     13,049        4,596        17,934        10,092   
                                

Noninterest Expense

        

Salaries and employee benefits

     8,027        7,899        15,853        15,890   

Equipment and occupancy expenses

     2,025        2,224        4,052        4,382   

Amortization of intangible assets

     186        147        457        293   

Data processing and telecommunications expenses

     2,077        1,704        3,840        3,331   

Advertising and marketing expenses

     143        439        302        1,013   

Other non-interest expenses

     10,925        5,316        15,810        8,547   
                                

Total Noninterest Expense

     23,383        17,729        40,314        33,456   
                                

Loss Before Tax Benefit

     (5,083     (3,984 )     (7,486     (5,159

Applicable Income Tax Benefit

     (1,664     (1,290 )     (2,533     (1,829
                                

Net Loss

   $ (3,419   $ (2,694 )   $ (4,953   $ (3,330
                                

Preferred Stock Dividends

     799        804        1,595        1,505   
                                

Net Loss Available to Common Shareholders

     (4,218     (3,498 )     (6,548     (4,835
                                

Other Comprehensive Income

        

Unrealized holding gain/(loss) arising during period on investment securities available for sale, net of tax

     374        (1,774     1,073        (1,195

Unrealized gain/(loss) on cash flow hedges arising during period , net of tax

     (216     917        (349     1,239   

Reclassification adjustment for (gains) included in net income, net of tax

     —          (66 )     (130     (529
                                

Comprehensive Income

   $ (4,060   $ (4,424   $ (5,954   $ (5,320
                                

Basic and Diluted (loss)/earnings per share

   $ (0.20   $ (0.25   $ (0.37   $ (0.35
                                

Weighted Average Common Shares Outstanding

        

Basic and Diluted

     21,321        13,904        17,569        13,906   
                                

See notes to unaudited consolidated financial statements.

 

2


Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands, except per share data)

(Unaudited)

 

     June 30, 2010     June 30, 2009  
     Shares     Amount     Shares    Amount  

PREFERRED STOCK

         

Balance at beginning of period

   52,000      $ 49,552      52,000    $ 49,028   

Accretion of fair value of warrant

   —          280      —        251   
                           

Issued at end of period

   52,000      $ 49,832      52,000    $ 49,279   

COMMON STOCK

         

Issued at beginning of period

   15,379,131      $ 15,379      15,289,625    $ 15,290   

Issuance of common stock

   9,473,125        9,473      —        —     

Issuance of restricted shares

   113,800        114      —        —     

Cancellation of restricted shares

   (8,500     (9 )   48,750      49  

Proceeds from exercise of stock options

   3,683        4      756      1   
                           

Issued at end of period

   24,961,239      $ 24,961      15,339,131    $ 15,339   

CAPITAL SURPLUS

         

Balance at beginning of period

     $ 89,389         $ 88,771   

Stock-based compensation

       243           292   

Issuance of common stock

       75,797           —     

Proceeds from exercise of stock options

       26           5   

Issuance of restricted shares

       (66 )        (49

Cancellation of restricted shares

       9           —     

Tax adjustment for vesting of restricted shares

       —             —     
                     

Balance at end of period

     $ 165,398         $ 89,019   

RETAINED EARNINGS

         

Balance at beginning of period

     $ 44,216         $ 90,539   

Net (loss)/income

       (4,953        (3,330

Dividends on preferred shares

       (1,308 )        (1,254 )

Accretion of fair value warrant

       (287 )        (304 )

Cash dividends on common shares

       (3        (1,358
                     

Balance at end of period

     $ 37,665         $ 84,293   

OTHER COMPREHENSIVE INCOME/(LOSS)

         

Unrealized gains (losses) on securities and derivatives:

         

Balance at beginning of period

     $ 7,240         $ 6,518   

Accumulated other comprehensive income

       594           (485 )
                     

Balance at end of period

     $ 7,834         $ 6,033   

TREASURY STOCK

         

Balance at beginning of period

     $ 10,812         $ 10,787   

Purchase of treasury shares

       8           23   
                     

Balance at end of period

     $ 10,820         $ 10,810   

TOTAL STOCKHOLDER’S EQUITY

     $ 274,870         $ 233,154   

See notes to unaudited consolidated financial statements.

 

3


Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

 

     Six Months Ended
June 30,
 
     2010     2009  

Cash Flows From Operating Activities:

    

Net Loss

   $ (4,953   $ (3,330

Adjustments reconciling net loss to net cash provided by operating activities:

    

Depreciation

     1,742        1,808   

Net (gains)/losses on sale or disposal of premises and equipment

     (397     96   

Net losses or write-downs on sale of other real estate owned

     5,048        782   

Provision for loan losses

     29,378        17,302   

Gain on FDIC assisted acquisition, net of tax

     (5,155     —     

Amortization of intangible assets

     457        293   

Net gains on securities available for sale

     (200     (794

Other prepaids, deferrals and accruals, net

     (4,335     1,872   
                

Net cash provided by operating activities

     21,585        18,029   
                

Cash Flows From Investing Activities:

    

Net increase in federal funds sold and interest bearing deposits

     (19,712     (18,960

Proceeds from maturities of securities available for sale

     51,596        124,501   

Purchase of securities available for sale

     (37,857     (48,191

Proceeds from sales of securities available for sale

     6,145        31,879   

Net (increase) / decrease in loans

     37,232        (13,503

Proceeds from sales of other real estate owned

     15,983        5,060   

Proceeds from sales of premises and equipment

     1,584        1,647   

Purchases of premises and equipment

     (2,000     (4,778

Decrease in FDIC indemnification asset

     9,061        —     

Cash paid in FDIC-assisted acquisition

     (35,657     —     
                

Net cash provided by investing activities

     26,375        77,655   
                

Cash Flows From Financing Activities:

    

Net increase/(decrease) in deposits

     (118,885     (37,154

Net increase in securities sold under agreements to repurchase

     (37,654     (10,932

Decrease in other borrowings

     (2,000     (65,000

Dividends paid - preferred stock

     (1,308     (1,254

Dividends paid - common stock

     —          (1,358

Issuance of common stock

     85,270        —     
                

Net cash used in financing activities

     (74,577     (115,698
                

Net decrease in cash and due from banks

   $ (26,616   $ (20,014

Cash and due from banks at beginning of period

     81,060        66,787   
                

Cash and due from banks at end of period

   $ 54,444      $ 46,773   
                

See notes to unaudited consolidated financial statements

 

4


Table of Contents

AMERIS BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(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”). At June 30, 2010, the Bank operated 53 branches in select markets in Georgia, Alabama, 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 community 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, 2010 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, 2009.

Certain amounts reported for the periods ended December 31, 2009 and June 30, 2009 have been reclassified to conform to the presentation as of June 30, 2010. These reclassifications had no effect on previously reported net income or stockholders’ equity.

Newly Adopted Accounting Pronouncements

In April 2010, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2010-18, Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset (“ASU No. 2010-18”). ASU No. 2010-18 provides guidance on the accounting for loan modifications when the loan is part of a pool of loans accounted for as a single asset such as acquired loans that have evidence of credit deterioration upon acquisition that are accounted for under the guidance in ASC 310-30, Loans and Debt Securities Acquired with Deterioration of Credit Quality (“ASC” 310-30). ASU No. 2010-18 addresses diversity in practice on whether a loan that is part of a pool of loans accounted for as a single asset should be removed from that pool upon a modification that would constitute a troubled debt restructuring (“TDR”) or remain in the pool after modification. ASU No. 2010-18 clarifies that modifications of loans that are accounted for within a pool under ASC 310-30 do not result in the removal of these loans from the pool even if the modification of these loans would otherwise be considered a TDR. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if the expected cash flows for the pool change. The amendments in this update do not require any additional disclosures and are effective for modifications of loans accounted for within pools under ASC 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. ASU 2010-18 is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

In July 2010, the FASB issued Accounting Standards Update No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU No. 2010-20”). ASU No. 2010-20 requires disclosures regarding loans and the allowance for loan losses that are disaggregated by portfolio segment and class of financing receivable. Existing disclosures were amended to require a rollforward of the allowance for loan losses by portfolio segment, with the ending balance broken out by basis of impairment method, as well as the recorded investment in the respective loans. Nonaccrual and impaired loans by class must also be shown. ASU No. 2010-20 also requires disclosures regarding: 1) credit quality indicators by class, 2) aging of past due loans by class, 3) TDRs by class and their effect on the allowance for loan losses, 4) defaults on TDRs by class and their effect on the allowance for loan losses, and 5) significant purchases and sales of loans disaggregated by portfolio segment. This guidance is effective for interim and annual reporting periods ending on or after December 15, 2010, for end of period type disclosures. Activity related disclosures are effective for interim and annual reporting periods beginning on or after December 15, 2010. ASU No. 2010-20 will have an impact on the Company’s disclosures, but not its financial position or results of operations.

 

5


Table of Contents

In March 2010, the FASB issued Accounting Standards Update No. 2010-11, Derivatives and Hedging: Scope Exception Related to Embedded Credit Derivatives (“ASU No. 2010-11”). ASU No. 2010-11 clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements, by resolving a potential ambiguity about the breadth of the embedded credit derivative scope exception with regard to some types of contracts, such as collateralized debt obligations (“CDO’s”) and synthetic CDO’s. The scope exception will no longer apply to some contracts that contain an embedded credit derivative feature that transfers credit risk. The ASU is effective for fiscal quarters beginning after June 15, 2010, and is not expected to have a material impact on Company’s results of operations, financial position or disclosures.

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. The accounting standard for 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 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 mortgage-backed securities issued by government sponsored enterprises and municipal bonds. The level 2 fair value pricing is provided by an independent third-party and is based upon similar securities in an active market. 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. 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 loan will not be collected as scheduled. The fair value of impaired loans is determined in accordance with accounting standards 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

 

6


Table of Contents

market appraisals or other methods do not produce reliable determinations of fair value, these assets are deemed to be Level 3.

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, 2010, the Company had cash flow hedges with a notional amount of $35.0 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 some cases the valuation method for other real estate does not produce estimates of fair value that represents disposal level values for assets management is actively, sometimes aggressively marketing. Because of this, management routinely applies discounts to appraisals and as such have classified these assets as level 3..

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

 

     June 30, 2010    June 30, 2009
     Carrying
Amount
   Fair
Value
   Carrying
Amount
   Fair
Value
     (Dollars in Thousands)

Financial assets:

           

Loans, net

   $ 1,651,204    $ 1,662,689    $ 1,632,047    $ 1,644,118

Financial liabilities:

           

Deposits

   $ 2,080,026    $ 2,082,649    $ 1,976,371    $ 1,982,813

Other borrowings

   $ —      $ —      $ 7,000    $ 7,088

The fair value hierarchy 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.

 

7


Table of Contents

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 fair value hierarchy in which the fair value measurements fall as of June 30, 2010 and 2009:

 

     Fair Value Measurements on a Recurring Basis
As of June 30, 2010
     Fair Value    Quoted
Prices
in Active
Markets for
Identical
Assets
(Level  1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)

U.S. government agencies

   $ 19,914    $ —      $ 19,914    $ —  

State and municipal securities

     43,910    $ —        43,910    $ —  

Corporate debt securities

     9,585    $ —        7,585    $ 2,000

Mortgage backed securities

     164,355    $ —        164,355    $ —  

Derivative financial instruments

   $ 1,505    $ —      $ 1,505    $ —  
                           

Total recurring assets at fair value

   $ 239,269    $ —      $ 237,269    $ 2,000
                           
     Fair Value Measurements on a Recurring Basis
As of December 31, 2009
     Fair Value    Quoted
Prices
in Active
Markets for
Identical
Assets
(Level  1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)

U.S. government agencies

   $ 39,525    $ —      $ 39,525    $ —  

State and municipal securities

   $ 38,156    $ —      $ 38,156    $ —  

Corporate debt securities

   $ 8,675    $ —      $ 6,675    $ 2,000

Mortgage backed securities

   $ 159,200    $ —      $ 159,200    $ —  

Derivative financial instruments

   $ 1,882    $ —      $ 1,882    $ —  
                           

Total recurring assets at fair value

   $ 247,438    $ —      $ 245,438    $ 2,000
                           
     Fair Value Measurements on a Recurring Basis
As of June 30, 2009
     Fair Value    Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)

U.S. government agencies

   $ 40,535    $ —      $ 40,535    $ —  

State and municipal securities

   $ 38,365    $ —      $ 38,365    $ —  

Corporate debt securities

   $ 10,402    $ —      $ 8,402    $ 2,000

Mortgage backed securities

   $ 168,469    $ —      $ 168,469    $ —  

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 valuation hierarchy.

 

     Fair Value Measurements on a Nonrecurring Basis
As of June 30, 2010
     Fair Value    Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)

Impaired loans, net of valuation allowance

   $ 82,071    $ —      $ 82,071    $ —  

Other real estate owned

     41,079      —        —        41,079

Covered loans

     192,545      —        —        192,545

Covered other real estate owned

     25,845      —        —        25,845
                           

Total non-recurring assets at fair value

   $ 341,540    $ —      $ 82,071    $ 259,469
                           

 

8


Table of Contents
      Fair Value Measurements on a Nonrecurring Basis
As of December 31, 2009
     Fair Value    Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
     (Dollars in Thousands)

Impaired loans carried at fair value

   $ 81,050    $ —      $ 81,050    $ —  

Other real estate owned

     23,316      —        —        23,316

Covered loans

     137,248      —        —        137,248

Covered other real estate owned

     9,337      —        —        9,337
                           

Total nonrecurring assets at fair value

   $ 250,951    $ —      $ 81,050    $ 169,901
                           
     Fair Value Measurements on a Nonrecurring Basis
As of June 30, 2009
     Fair Value    Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)

Impaired loans carried at fair value

   $ 57,418    $ —      $ 57,418    $ —  

Other real estate owned

     18,980      —        18,980      —  
                           

Total nonrecurring assets at fair value

     76,398      —        76,398      —  
                           

Pursuant to accounting standards, below is the Company’s reconciliation of Level 3 assets as of June 30, 2010. Gains or losses on impaired loans are recorded in the provision for loan losses.

 

     Investment
Securities
Available
for Sale
   Other Real
Estate
Owned
    Covered
Loans
   Covered
Other Real
Estate

Beginning balance January 1, 2010

   $ 2,000    $ 23,316      137,248    9,337

Total gains/(losses) included in net income

     —        (5,048   2,353    —  

Purchases, sales, issuances, and settlements, net

     —        (16,753   52,944    16,508

Transfers in or out of Level 3

     —        39,564      —      —  
                        

Ending balance June 30, 2010

   $ 2,000    $ 41,079      192,545    25,845
                        

NOTE 2 – COMMON STOCK OFFERING

On April 20, 2010, the Company completed a registered public offering of shares of the Company’s common stock, par value $1.00 per share (the “Common Stock”), in which the Company sold 9,473,125 shares of Common Stock at an offering price of $9.50 per share. The Company’s net proceeds from the offering totaled approximately $85.3 million.

NOTE 3 – 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, 2010, December 31, 2009 and June 30, 2009 are presented below:

 

     Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
    Fair
Value
     (Dollars in Thousands)

June 30, 2010:

          

U. S. government agencies

   $ 19,329    $ 585    $ —        $ 19,914

State and municipal securities

     42,823      1,100      (13     43,910

Corporate debt securities

     12,635      92      (3,142     9,585

Mortgage-backed securities

     156,307      8,110      (62     164,355
                            

Total debt securities

   $ 231,094    $ 9,887    $ (3,217   $ 237,764
                            

 

9


Table of Contents

December 31, 2009:

          

U. S. government agencies

   $ 39,194    $ 416    $ (85   $ 39,525

State and municipal securities

     37,133      1,048      (25     38,156

Corporate debt securities

     12,178      36      (3,539     8,675

Mortgage-backed securities

     151,833      7,536      (169     159,200
                            

Total securities

   $ 240,338    $ 9,036    $ (3,818   $ 245,556
                            

June 30, 2009:

          

U. S. government 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      5,337      (198     168,469
                            

Total securities

   $ 253,998    $ 6,306    $ (2,533   $ 257,771
                            

The amortized cost and fair value of available-for-sale securities at June 30, 2010 by contractual maturity are summarized in the table below. Expected maturities for mortgage-backed securities may differ from contractual maturities because in certain cases borrowers can prepay obligations without prepayment penalties. Therefore, these securities are not included in the following maturity summary.

 

     Amortized
Cost
   Fair
Value
     (Dollars in Thousands)

Due in one year or less

   $ 3,368    $ 3,385

Due from one year to five years

     15,186      15,595

Due from five to ten years

     39,590      40,499

Due after ten years

     16,643      13,930

Mortgage-backed securities

     156,307      164,355
             
   $ 231,094      237,764
             

Securities with a carrying value of approximately $118.1 million were pledged to secure public deposits and other purposes required or permitted by law at June 30, 2010.

The following table details the gross unrealized losses and fair value of securities aggregated by category and duration of continuous unrealized loss position at June 30, 2010 and December 31, 2009.

 

     Less Than 12
Months
    12 Months or
More
    Total  

Description of Securities

   Fair
Value
   Unrealized
Losses
    Fair
Value
   Unrealized
Losses
    Fair
Value
   Unrealized
Losses
 
     (Dollars in Thousands)  

June 30, 2010:

               

U. S. government agencies

   $ —      $ —        $ —      $ —        $ —      $ —     

State and municipal securities

     2,488      (9     921      (4     3,409      (13

Corporate debt securities

     916      (84     5,045      (3,058     5,961      (3,142

Mortgage-backed securities

     3,072      (1     1,509      (61     4,581      (62
                                             

Total debt securities

     6,476      (94     7,475      (3,123     13,951      (3,217
                                             

 

10


Table of Contents

December 31, 2009:

               

U. S. government agencies

   $ 14,908    $ (85   $ —      $ —        $ 14,908    $ (85

State and municipal securities

     3,200      (22     613      (3     3,813      (25

Corporate debt securities

     861      (139     4,722      (3,400     5,583      (3,539

Mortgage-backed securities

     —        —          1,408      (169     1,408      (169
                                             

Total debt securities

   $ 18,969    $ (246   $ 6,743    $ (3,572   $ 25,712    $ (3,818
                                             

NOTE 3 – 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 in 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 less selling cost. 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 uncollectible, Ameris’ policy is to record a charge against the allowance for loan losses. Loans acquired in FDIC-assisted acquisitions that are subject to loss-sharing agreements are discussed further in Footnote 6.

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 presented in the following table:

 

(Dollars in Thousands)

   June 30,
2010
   December 31,
2009
   June 30,
2009

Commercial, financial and agricultural

   $ 168,108    $ 168,046    $ 188,497

Real estate – residential

     172,195      182,483      188,987

Real estate – commercial and farmland

     1,013,354      1,063,369      1,100,491

Real estate – construction and development

     79,366      100,770      128,658

Consumer installment

     55,328      59,108      62,508

Other

     4,775      10,583      7,904
                    
   $ 1,493,126    $ 1,584,359    $ 1,677,045
                    

Covered loans at June 30, 2010 and December 31, 2009 are shown below:

 

(Dollars in Thousands)

   June 30,
2010
   December 31,
2009

Commercial, financial and agricultural

   $ 18,771    $ 22,854

Real estate – residential

     43,995      11,454

Real estate – commercial and farmland

     92,483      65,087

Real estate – construction and development

     30,177      23,168

Consumer installment

     7,119      14,685
             
   $ 192,545    $ 137,248
             

 

11


Table of Contents

NOTE 4 – ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses for the six months ended June 30, 2010 and 2009, and for the twelve months ended December 31, 2009 is as follows:

 

(Dollars in Thousands)

   June 30,
2010
    December 31,
2009
    June 30,
2009
 

Balance, January 1

   $ 35,762      $ 39,652      $ 39,652   

Provision for loan losses charged to expense

     29,378        42,068        17,302   

Loans charged off

     (32,002     (47,129     (12,623

Recoveries of loans previously charged off

     1,330        1,171        667   
                        

Ending balance

   $ 34,468      $ 35,762      $ 44,998   
                        

The following is a summary of information pertaining to impaired loans for the six months ended June 30, 2010 and 2009 and the twelve months ended December 31, 2009:

 

(Dollars in Thousands)    June 30,
2010
   December 31,
2009
   June 30
2009

Impaired loans requiring a valuation allowance

   $ 69,663    $ 55,504    35,713

Impaired loans not requiring a valuation allowance

   $ 22,673    $ 40,627    33,145

Valuation allowance related to impaired loans

   $ 10,265    $ 6,815    6,843

Average investment in impaired loans

   $ 92,705      75,784    67,136

Interest income recognized on impaired loans

     192    $ 523    323

Foregone interest income on impaired loans

   $ 1,508    $ 6,253    1,339

NOTE 5 – OTHER REAL ESTATE OWNED

The following is an inventory of other real estate as of June 30, 2010:

 

(Dollars in Thousands)    Number of
Properties
   Carrying
Amount

Land - Commercial

   17    $ 5,465

Land – Residential

   17      4,475

Finished residential lots

   103      5,237

Subdivision

   6      5,490

SFR properties

   105      9,906

Commercial properties

   22      9,870

Agricultural land

   5      636
           

Total Other Real Estate Owned

   275    $ 41,079
           

 

12


Table of Contents

NOTE 6 – ASSETS ACQUIRED IN FDIC-ASSISTED ACQUISITIONS

On May 14, 2010, Ameris Bank purchased substantially all of the assets and assumed substantially all the liabilities of Satilla Community Bank (“SCB”) from the Federal Deposit Insurance Corporation (“FDIC”), as Receiver of SCB. SCB operated only one branch in St. Marys, Georgia, the southernmost city on the Georgia coast and a northern suburb of Jacksonville, Florida. The Company’s agreement with the FDIC included a loss-sharing agreement which affords Ameris Bank significant protection from losses associated with loans and OREO. Under the terms of the loss sharing agreements, the FDIC will absorb 80 percent of all losses and share 80 percent of all loss recoveries. The term for loss sharing on residential real estate loans is ten years, while the term for loss sharing on all other loans is five years.

The fair value of the assets acquired and the liabilities assumed are seen below:

 

     Satilla
Community
Bank
 

Assets acquired:

  

Cash and due from banks

   $ 15,225   

Securities available for sale

     10,322   

Loans

     68,751   

Foreclosed property

     2,012   

Estimated FDIC indemnification asset

     22,400   

Other assets, including CDI

     1,289   
        

SCB assets acquired

     119,999   

less: cash paid to settle acquisition

     (35,657
        

Total assets acquired

   $ 84,342   
        

Liabilities assumed

  

Deposits

   $ 75,795   

Accrued interest and other liabilities

     339   
        

Total liabilities assumed

     76,134   
        

Net assets acquired/gain from acquisition

   $ 8,208   
        

The Company’s bid to acquire SCB included a discount on the book value of the assets totaling $14.4 million. Also included in the bid was a premium of approximately $92,000 on SCB’s deposits. Because SCB’s brokered deposits did not pass to Ameris Bank, the acquisition resulted in significantly more assets being purchased than liabilities assumed. As a result, Ameris Bank made a cash payment to the FDIC totaling $35.7 million to settle the transaction.

The loss-sharing agreement is subject to the servicing procedures as specified in the agreement with the FDIC. The expected reimbursements under the loss-sharing agreement were recorded as an indemnification asset at their estimated fair value of $22.4 million on the acquisition date. Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded. The transaction resulted in a gain of $8.2 million, before tax, which is included in the Company’s June 30, 2010 Consolidated Statement of Operations. Due to the difference in tax bases of the assets acquired and liabilities assumed, the Bank recorded a deferred tax liability of $3.0 million, resulting in an after-tax gain of $5.2 million.

The Company considers that the determination of the initial fair value of loans at the acquisition and the initial fair value of the related FDIC indemnification asset involves a high degree of judgment and complexity. The carrying value of the acquired loans and the FDIC indemnification asset reflect management’s best estimate of the fair value of each of these assets as of the date of acquisition. However, the amount that the Company realizes on these assets could differ materially from the carrying value reflected in these financial statements, based upon the timing and amount of collections on the acquired loans in future periods. In order to minimize the number and extent of variances, the Company has performed substantial valuation procedures supported by an outside party whose scope was to determine fair value. The Company has ordered appraisals on a substantial number of the problem loans where the loan appears to be collateral dependent and initial review of the appraisals received supports the Company’s valuation

 

13


Table of Contents

procedures and amounts. Because of the loss-sharing agreement with the FDIC on these assets, the Company should not incur any significant losses. To the extent the actual values realized for the acquired loans are different from the estimate the indemnification asset will generally be affected in an offsetting manner due to the loss sharing support from the FDIC.

In its assumption of the deposit liabilities in the acquisitions, Ameris Bancorp believed that the customer relationships associated with these deposits have intangible value. The Company determined the fair value of a core deposit intangible asset totaling approximately $181,000. In determining the valuation amount, deposits were analyzed based on factors such as type of deposit, deposit retention, interest rates, age of deposit relationships, and the maturities of time deposits. The gain resulting from the acquisition was reduced by the fair value of the core deposit intangible asset, thus reducing the carrying value of such asset to zero.

ASC 310 – 30, applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. ASC 310 – 30 prohibits carrying over or creating an allowance for loan losses upon initial recognition for loans which fall under the scope of this statement. On the acquisition date, the preliminary estimate of the contractually required payments receivable for all ASC 310 – 30 loans acquired in the acquisition were $51.6 million and the estimated fair value of the loans were $25.5 million, net of an accretable yield of $1.5 million, the difference between the value of the loans on our balance sheet and the cash flows they are expected to produce. These amounts were determined based upon the estimated remaining life of the underlying loans, which are greatly affected by the Company’s workout strategy which involves accelerated efforts to improve the credit or dispose of the asset. At the acquisition dates, a majority of these loans were valued based on the liquidation value of the underlying collateral because the future cash flows are primarily based on the liquidation of underlying collateral. There was no allowance for credit losses established related to these ASC 310 – 30 loans at the acquisition dates, based on the provision of this statement.

The fair value of loans acquired in the SCB acquisition is detailed below based on their initial estimate of credit quality:

 

     Loans with
deterioration
of credit
quality
   Loans
without a
deterioration
of credit
quality
   Total
loans, at
fair
value

Commercial, industrial, agricultural

   $ 73    $ 1,568    $ 1,641

Real estate – residential

     9,264      11,991      21,255

Real estate – commercial & farmland

     7,158      21,169      28,327

Construction & development

     8,976      7,824      16,800

Consumer

     —        728      728
                    
   $ 25,471    $ 43,280    $ 68,751
                    

In addition to the covered assets acquired in the most recent acquisition, the Company has other investments in covered assets remaining from the earlier FDIC-assisted acquisitions completed in the fourth quarter of 2009. The following table summarizes components of all covered assets at June 30, 2010 and their origin:

 

14


Table of Contents
(Dollars in Thousands)    American
United Bank
    United
Security Bank
    Satilla
Community
Bank
    Covered
Assets
 

Covered Loans

   $ 59,827      $ 85,959      $ 93,002      $ 238,788   

Less adjustments related to credit risk

     (8,716     (11,256     (24,576     (44,548

Less adjustments related to liquidity and yield

     (343     (846     (506     (1,695
                                

Total Covered Loans

   $ 50,768      $ 73,857      $ 67,920      $ 192,545   
                                

OREO

   $ 12,863      $ 12,436      $ 3,854      $ 29,154   

Less fair value adjustments

     (1,017     (291     (2,000     (3,308
                                

Covered OREO

   $ 11,846      $ 12,145      $ 1,854      $ 25,845   
                                

Total Covered Assets

     62,614        86,002        69,774        218,390   
                                

FDIC loss share receivable

     16,792        19,901        22,486        59,179   
                                

On the dates of acquisition, the Company estimated the future cash flows on each individual loan and made the necessary adjustments to reflect the asset at fair value. At each quarter end subsequent to the acquisition dates, the Company revises the estimates of future cash flows based on current information and makes the necessary adjustments to continue reflecting the assets at their fair value.

The adjustments to fair value are done on a loan-by-loan basis and have resulted in the following:

 

(Dollars in Thousands)

   Total
amounts
Through
June 30,
2010
   Amounts
reflected in
the
Company’s
Statement  of
Operations

Adjustments needed where the Company’s initial estimate of cash flows were underestimated: (recorded with a reclassification from non-accretable difference to accretable yield)

   $ 16,987    $ 2,353

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

     4,417      883

A rollforward of acquired loans with deterioration of credit quality for the six months ended June 30, 2010 is shown below:

 

(Dollars in Thousands)    Acquired loans with
deterioration of credit
quality
 

Beginning Balance, December 31, 2009

   $ 56,793   

Change in estimate of cash flows, net of charge-offs or recoveries

     (849

Acquisition of SCB, May 14, 2010

     25,471   

Other (loan payments, transfers, etc)

     (2,429
        

Balance, June 30, 2010

     78,986   
        

The following is a summary of changes in the accretable yields of acquired loans during the year to date period ending June 30, 2010:

 

     Accretable
Yield
 
(dollars in thousands)    2010  

Balance, beginning of year

   $ 3,550   

Additions due to acquisitions

     1,508   

Accretion

     (2,353 )

Transfers from nonaccretable difference to accretable yield

     3,398   

Disposals

     —     
        

Balance, end of period

   $ 6,103   
        

NOTE 7 – WEIGHTED AVERAGE SHARES OUTSTANDING

Due to the net loss reported for the quarter and year to date period ending June 30, 2010 and 2009, the Company has excluded the effects of options as these would have been anti-dilutive. 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,
     2010    2009    2010    2009
     (share data in
thousands)
   (share data in
thousands)

Basic shares outstanding

   21,231    13,904    17,569    13,906

Plus: Dilutive effect of ISOs

   —      —      —      —  

Plus: Dilutive effect of Restricted Grants

   —      —      —      —  
                   

Diluted shares outstanding

   21,231    13,904    17,569    13,906
                   

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 or provide additional liquidity when appropriate spreads can be realized. At June 30, 2010, there were no outstanding borrowings with the Company’s correspondent banks, compared to $2.0 million at December 31, 2009 and $7.0 million at June 30, 2009. The Company’s success with attracting and retaining retail deposits has allowed for very low dependence on more volatile non-deposit funding.

 

15


Table of Contents

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.

The Company’s commitments to extend credit and standby letters of credit are presented in the following table:

 

(Dollars in Thousands)

   June 30,
2010
   June 30,
2009

Commitments to extend credit

   $ 143,437    $ 131,192

Standby letters of credit

   $ 6,897    $ 3,751

 

16


Table of Contents

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 SEC 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.

 

17


Table of Contents
     2010     2009     For Six Months Ended  
(in thousands, except share data,
taxable equivalent)
   Second
Quarter
    First Quarter     Fourth
Quarter
    Third Quarter     Second
Quarter
    2010     2009  

Results of Operations:

  

Net interest income

   $ 23,859      $ 20,413      $ 19,701      $ 18,812      $ 18,539      $ 44,272      $ 35,507   

Net interest income (tax equivalent)

     24,588        20,644        19,939        18,998        18,703        45,232        35,847   

Provision for loan losses

     18,608        10,770        16,468        8,298        9,390        29,378        17,302   

Non-interest income

     13,049        4,885        43,739        4,521        4,596        17,934        10,092   

Non-interest expense

     23,383        16,931        75,982        15,360        17,729        40,314        33,456   

Net loss

     (3,419 )     (1,534     (38,333 )     (127 )     (2,694 )     (4,953 )     (3,330 )

Net loss avail to shareholders

     (4,218 )     (2,330     (39,192 )     (923 )     (3,498 )     (6,548 )     (4,835 )

Selected Average Balances:

  

Loans, net of unearned income

   $ 1,683,522      $ 1,683,518      $ 1,749,548      $ 1,666,821      $ 1,671,808      $ 1,683,520      $ 1,677,712   

Investment securities

     245,182        245,895        254,648        255,164        256,981        245,539        309,262   

Earning assets

     2,223,743        2,133,864        2,162,412        2,064,253        2,096,969        2,178,804        2,132,691   

Assets

     2,444,425        2,377,348        2,374,352        2,244,527        2,285,190        2,410,887        2,201,946   

Deposits

     2,111,612        2,101,780        2,043,151        1,931,990        1,971,672        2,106,696        1,987,103   

Shareholders’ equity

     266,279        194,187        256,741        237,805        237,205        230,233        238,518   

Period-End Balances:

  

Loans, net

   $ 1,651,204      $ 1,626,737      $ 1,685,845      $ 1,610,743      $ 1,632,047      $ 1,651,204      $ 1,632,047   

Earning assets

     2,171,262        2,270,427        2,188,622        2,024,442        2,099,947        2,171,262        2,099,947   

Total assets

     2,421,910        2,351,658        2,423,971        2,207,475        2,285,245        2,421,910        2,285,245   

Total deposits

     2,080,026        2,088,306        2,123,116        1,887,529        1,976,371        2,080,026        1,976,371   

Shareholders’ equity

     274,870        193,361        194,964        233,016        233,154        274,870        233,154   

Per Common Share Data:

  

Basic earnings per share

   $ (0.20 )   $ (0.17 )   $ (2.84 )   $ (0.06 )   $ (0.25 )   $ (0.37 )   $ (0.35 )

Diluted earnings per share

     (0.20 )     (0.17 )     (2.84     (0.06 )     (0.25 )     (0.37 )     (0.35 )

Book value per share

     9.57        10.23        10.51        13.52        13.17        9.57        13.17   

End of period shares outstanding

     23,627,005        14,151,187        14,044,907        14,004,897        14,005,101        23,627,005        14,005,101   

Weighted average shares outstanding

              

Basic

     21,231,367        13,906,137        13,912,458        13,906,299        13,904,215        17,568,752        13,906,073   

Diluted

     21,231,367        13,906,137        13,912,458        13,906,299        13,904,215        17,568,752        13,906,073   

Market Price:

  

High Closing Price

     11.55        10.32        7.25        7.47        8.09        11.55        11.73   

Low Closing Price

     9.00        7.36        5.13        5.93        5.29        7.36        3.66   

Closing Price for Quarter

     9.66        9.03        7.16        7.15        6.32        9.66        6.32   

Trading volume (avg daily)

     205,389        37,715        38,583        30,407        28,778        121,552        30,355   

Cash dividends per share

     —          —          —          —          0.05        —          0.05   

Performance Ratios:

  

Return on average assets

     (0.69 %)      (0.26 %)      (6.54 % )     (0.14 %)      (0.61 %)      (0.47 % )      (0.22 %) 

Return on average equity

     (6.34 %)      (4.33 %)      (75.56 % )     (1.68 %)      (7.45 %)      (4.95 % )      (2.53 %) 

Net interest margin (t/e)

     4.43     3.92     3.66     3.65     3.59     4.19     3.39

Equity/Assets (average)

     10.99     8.16     10.81     10.59     10.38     9.54     10.83

Efficiency ratio

     63.35     66.93     119.77     65.83     76.63     64.81     73.36

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 balance sheet as of June 30, 2010 as compared to December 31, 2009 and operating results for the six month period ended June 30, 2010. 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, 2010

Consolidated Earnings and Profitability

Ameris reported a net loss available to common shareholders of $4.2 million, or $0.20 per diluted share, for the quarter ended June 30, 2010, compared to a net loss for the same quarter in 2009 of $3.5 million, or $0.25 per diluted share. The Company’s return on average assets and average shareholders’ equity decreased in the second quarter of 2010 to (0.69%) and (6.34%), respectively, compared to (0.61%) and (7.45%), respectively in the second quarter of 2009. The decrease in earnings and profitability during the quarter was primarily due to higher levels of loan loss provisions and costs associated with problem assets.

Net Interest Income and Margins

On a tax equivalent basis, net interest income for the second quarter of 2010 was $24.6 million, an increase of $5.9 million compared to the same quarter in 2009. The Company’s net interest margin increased during the second quarter of 2010 to 4.43% compared to 3.59% during the same quarter in 2009. The continued improvement in the net interest margin is due to a combination of reduced

 

18


Table of Contents

funding costs, relatively steady loan yields and the positive impact of accretable differences from the Company’s first two FDIC-assisted acquisitions.

Total interest income (on a tax equivalent basis) during the second quarter of 2010 was $31.8 million compared to $29.3 million in the same quarter of 2009. Yields on earning assets increased slightly to 5.74% compared to 5.60% reported in the second quarter of 2009. During the second quarter of 2010, the Company recognized approximately $2.35 million of accretable differences related to the FDIC-assisted acquisitions in 2009. These amounts represent an improvement in the expected cash flows to be received over the life of the acquired loans over the initial estimate made at the acquisition date. In most cases, the acquired loans were either paid off or transferred to other real estate such that a final value could be determined. In some cases, improvements in expected cash flows were found on existing loans, in which case the Company is amortizing the improvement over the remaining contractual term of the loan.

In addition to the positive impact of the accretable differences, the Company realized steady yields on its uncovered loan portfolio. Yields on these loans decreased slightly to 6.03% in the second quarter of 2010 compared to 6.20% in the same quarter in 2009. In addition to the slightly lower yields on loans, the Company experienced higher levels of liquidity during the recent quarter as a percentage of earning assets. In the second quarter of 2010, short-term assets accounted for 12.9% of total earning assets compared to only 7.7% in the same quarter in 2009. The Company’s decision to carry higher average levels of short-term assets than in the past relates to few loan and investment opportunities that meet the Company’s risk and profitability standards.

Interest expense declined significantly as the Company continued to improve its deposit mix and reduce deposit costs across its footprint. Total interest expense in the second quarter of 2010 amounted to $7.1 million, reflecting a decline of $2.9 million from the same quarter in 2009.

Total funding costs declined to 1.34% in the second quarter of 2010 compared to 2.45% in the second quarter of 2009. The decline in total funding costs relates to savings realized primarily on the cost of time deposits which has fallen significantly in the most recent twelve months. The cost of all time deposits fell from 3.13% in the second quarter of 2009 to 2.01% in the second quarter of 2009. Recent issue and renewal activity suggests continued declines in time deposits in the coming quarters, though at a slower pace than in the most recent past.

Provision for Loan Losses and Credit Quality

The Company’s provision for loan losses during the second quarter of 2010 amounted to $18.6 million compared to $10.8 million in the first quarter of 2010 and to $9.4 million in the first quarter of 2009. The higher level in the provision for loan losses generally reflects the trend in the level of non-performing assets. In addition, the Company negotiated a pending bulk sale of certain problem assets (loans and OREO) in the second quarter of 2010 with a book value of $21.3 million. The pending sale resulted in an additional provision for loan losses and writedowns on other real estate totaling $8.0 million and additional net charge-offs totaling $6.3 million. Because the bulk sale was scheduled to close after June 30, 2010, the Company continued to carry and report the expected proceeds from the sale, totaling $13.3 million, in non-performing loans and/or OREO.

Non-performing assets increased during the quarter to $133.4 million from $122.4 million at the end of the first quarter of 2010 and $88.0 million at the end of the same quarter in 2009. Net charge-offs on loans during the second quarter of 2010 increased to $17.7 million, compared to $13.0 million in the first quarter of 2010 and to $6.8 million in the second quarter of 2009. For the quarters ended June 30, 2010, March 31, 2010 and June 30, 2009, net charge-offs annualized as a percentage of loans were 4.21%, 3.08% and 1.63%, respectively. The Company’s allowance for loan losses at June 30, 2010 was $34.5 million, or 2.31% of total loans, compared to $45.0 million, or 2.68% of total loans, at June 30, 2009.

Non-interest Income

Total non-interest income for the second quarter of 2010 increased significantly to $13.0 million compared to $4.6 million in the same quarter in 2009. Included in the current quarter’s results is approximately $8.2 million related to the Company’s FDIC-assisted acquisition of SCB. Excluding this non-recurring income, the Company’s non-interest income increased 5.31% in the current quarter when compared to the second quarter of 2010. Almost all of the increase related to higher levels of service charges on deposit accounts, which increased to $3.6 million in the second quarter of 2010 compared to $3.4 million in the same quarter in 2009. The Company attributes the higher level of service charges to the increases in demand deposit accounts (interest bearing and non-interest bearing) over the past year, in part a result of the three FDIC-assisted acquisitions.

Non-interest Expense

Total non-interest expenses for the second quarter of 2010 increased to $23.4 million, compared to $17.7 million at the same time in 2009. Credit related costs (problem loan and OREO expense, OREO losses and writedowns) amounted to $6.2 million in the current quarter of 2010 compared to $1.4 million in the same quarter in 2009. Excluding these credit related expenses, total operating expenses would have shown an increase of $0.9 million, from $16.3 in the second quarter of 2009 to $17.2 million in the second quarter of 2010.

 

19


Table of Contents

Salaries and benefits increased slightly to $8.0 million in the second quarter of 2010 compared to $7.9 million in the second quarter of 2009. Included in the second quarter of 2010 is approximately $310,000 of severance benefits related to the Company’s recently announced reduction in force. In addition, the Company experienced some increase in staff associated with the three FDIC-assisted acquisitions that are not included in the results for the second quarter of 2009.

Data processing and telecommunications expenses increased during the quarter to $2.1 million, compared to $1.7 million in the same quarter in 2009. This increase relates to additional services needed for the three FDIC-assisted acquisitions ahead of conversions to the Company’s core processor. As such, the Company believes that a substantial portion of the increase is temporary.

Other non-interest expenses totaled $10.9 million during the second quarter of 2010, compared to $5.3 million in the same quarter in 2009. Included in the results are credit related expenses totaling $6.2 million and $1.4 million, respectively. Excluding the effect of the credit related expenses, the Company would have reported an increase in other non-interest expenses of $0.7 million. While the Company’s management of operating expenses has been successful, these saving were offset by the additional operating expenses necessary to continue operating the four acquired branches in the Company’s most recent acquisitions.

Income Taxes

Income tax expense is influenced by the amount of taxable income, the amount of tax-exempt income and the amount of non-deductible expenses. For the second quarter of 2010, the Company reported an income tax benefit of $1.7 million, compared to a benefit of $1.3 million in the same period of 2009. The Company’s effective tax rate for the three months ended June 30, 2010 and 2009 was 32.7% and 32.4%, respectively.

Results of Operations for the Six Months Ended June 30, 2010

Interest Income

Interest income for the six months ended June 30, 2010 was $59.1 million, an increase of $0.4 million when compared to $58.7 million for the same period in 2009. Average earning assets for the nine month period increased $46.1 million to $2.18 billion as of June 30, 2010 compared to $2.13 billion as of June 30, 2009. Yield on average earning assets declined only slightly to 5.56% in the first half of 2010 compared to 5.59% in the first half of 2009. Earning assets acquired in connection with the Company’s FDIC assisted acquisitions more than offset declines elsewhere in the Company’s earning assets. Additionally, yields on the acquired assets have been much stronger than the Company’s other earning assets, helping boost the Company’s overall yield on earning assets.

Interest Expense

Total interest expense for the six months ended June 30, 2010 amounted to $14.4 million, reflecting a decrease of $7.8 million from the same period of 2009. During the six month period ended June 30, 2010, the Company’s funding costs declined to 1.37% from 2.27% reported in the previous year. The majority of the decline relates to improvements in the cost of the Company’s time deposits which fell to 2.05% compared to 3.42% for the six month period ended June 30, 2009. The Company’s non-deposit funding also declined significantly from 2.68% in the first half of 2009 to 1.18% in the first half of 2010.

Net Interest Income

Higher levels of earning assets with generally level yields combined with significantly reduced funding costs have resulted in material improvements in net interest income. For the first half of 2010, the Company reported $44.3 million of net interest income, compared to $35.5 million of net interest income for the first half of 2009. The Company’s net interest margin increased to 4.19% in the six month period ending June 30, 2010 compared to 3.39% in the same period in 2009.

Provision for Loan Losses

The provision for loan losses rose to $29.3 million for the six months ended June 30, 2010 compared to $17.3 million in the same period in 2009. Total non-performing assets increased to $133.4 million at June 30, 2010 from $88.0 million at June 30, 2009. For the six month period ended June 30, 2010, Ameris Bank had net charge-offs totaling $30.7 million compared to $12.0 million for the same period in 2009.

Non-interest Income

Non-interest income for the first six months of 2010 increased to $17.9 million compared to $10.0 million in the same period in 2009. The Company’s results for the first half of 2010 includes an $8.2 million gain on the FDIC-assisted acquisition of SCB. Service charges on deposit accounts increased approximately $0.6 million to $7.1 million in the first half of 2010 compared to the same period in 2009. The increases in service charges are related to higher numbers of overdrawn accounts as well as

 

20


Table of Contents

incremental revenue from the deposit accounts acquired in the Company’s FDIC-assisted acquisitions. Income from mortgage banking activity declined from $1.6 million in the first half of 2009 to $1.2 million in the first half of 2010. The Company recently announced reduction in force included several mortgage producers and additional support staff which has caused a reduction in mortgage revenue but an increase in overall profitability from mortgage banking activities.

Non-interest Expense

Total operating expenses for the first half of 2010 increased to $40.3 million compared to $33.5 million in the same period in 2009. During the six month period ending June 30, 2010, the Company’s credit related costs (problem loan and OREO expenses, losses and writedowns on OREO) totaled $8.2 million compared to $2.1 million in the six month period ending June 30, 2009. Salaries and benefits were essentially unchanged at approximately $15.9 million, despite the Company’s recently announced reduction in force. Salaries and benefits in the first half of 2010 includes approximately $0.3 million of related severance benefits as well as costs associated with the 39 employees working in the Company’s recently acquired banks. Data processing and operating expenses increased from $3.3 million in the first half of 2009 to $3.8 million in the first half of 2010. Data processing costs in 2010 includes certain costs required to convert the operations of the acquired banks as well as incremental service fees related to the acquired accounts.

Income tax benefit

In the first half of 2010, the Company recorded an income tax benefit totaling approximately $2.5 million, representing an effective tax rate of 33.8%. This compares to a benefit of $1.8 million in the first six months of 2009 representing an effective rate of 35.4%.

Securities

Debt securities with readily determinable fair values are classified as available for sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income, net of the related deferred tax effect. Equity securities, including restricted equity securities, are classified as other investment securities and are recorded at their fair market value.

The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the life of the securities. Realized gains and losses, determined on the basis of the cost of specific securities sold, are included in earnings on the settlement date. Declines in the fair value of securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses.

In determining whether other-than-temporary impairment losses exist, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Substantially all of the unrealized losses on debt securities are related to changes in interest rates and do not affect the expected cash flows of the issuer or underlying collateral. All unrealized losses are considered temporary because each security carries an acceptable investment grade and the Company has the intent and ability to hold to maturity. Therefore, at June 30, 2010, these investments are not considered impaired on an other-than temporary basis.

Loans and Allowance for Loan Losses

At June 30, 2010, gross loans outstanding (including covered loans) were $1.69 billion, a slight increase from $1.68 billion reported at June 30, 2009. When compared to the period ended December 31, 2009, gross loans declined approximately $35.9 million, or 2.1%. The Company’s continued participation in FDIC-assisted acquisitions is integral to being able to maintain a certain level of loans because management does not believe that enough loan opportunities with acceptable quality and profitability exist in our current market areas to cause loan footings to stabilize and increase. Decreases in uncovered loans over the past year reflect this trend, decreasing 11.0% from $1.68 billion at June 30, 2009 to $1.49 billion at June 30, 2010.

The decline in loans also reflects management’s focus on reducing higher risk loans within the Bank’s loan portfolio as well as the slower economic environment that persisted throughout 2009 and the first quarter of 2010. 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.

 

21


Table of Contents

The Company focuses on the following loan categories: (1) commercial, financial and 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 select markets in south and southeast Georgia, north Florida, southeast Alabama and throughout the state of South Carolina to take advantage of the growth in these areas.

The Company’s risk management processes include a loan review program designed to evaluate the credit risk in the loan portfolio and ensure credit grade accuracy. Through the loan review process, the Company conducts (1) a loan portfolio summary analysis, (2) charge-off and recovery analysis, (3) trends in accruing problem loan analysis, and (4) problem and past due loan analysis. This analysis process serves as a tool 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 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 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 also considers 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.

For the six month period ended June 30, 2010, the Company recorded net charge-offs totaling $30.7 million compared to $11.0 million for the period ended June 30, 2009. The provision for loan losses for the six months ended June 30, 2010 increased to $29.4 million compared to $17.3 million during the six month period ended June 30, 2009. At the end of the second quarter of 2010, the allowance for loan losses totaled $34.5 million, or 2.31% of total loans, compared to $35.8 million, or 2.26% of total loans at December 31, 2009 and $45.0 million or 2.68% of total loans, at March 31, 2009.

The following table presents an analysis of the allowance for loan losses for the year to date periods ended June 30, 2010 and 2009:

 

(Dollars in Thousands)

   June 30,
2010
   June 30,
2009

Balance of allowance for loan losses at beginning of period

   $ 35,762    $ 39,652

Provision charged to operating expense

     29,378      17,302

Charge-offs:

     

Commercial, financial and agricultural

     2,711      2,204

Real estate – residential

     5,663      3,102

Real estate – commercial and farmland

     9,616      1,179

Real estate – construction and development

     13,778      5,661

Consumer installment

     234      477

Other

     —        —  
             

Total charge-offs

     32,002      12,623
             

Recoveries:

     

Commercial, financial and agricultural

     508      98

Real estate – residential

     112      224

Real estate – commercial and farmland

     266      243

Real estate – construction and development

     204      18

Consumer installment

     240      84

Other

     —        —  
             

 

22


Table of Contents

(Dollars in Thousands)

   June 30,
2010
    June 30,
2009
 

Total recoveries

   1,330        667   
              

Net charge-offs

   30,672        11,956   
              

Balance of allowance for loan losses at end of period

   34,468      $ 44,998   
              

Net annualized charge-offs as a percentage of average loans

   3.64     1.43

Allowance for loan losses as a percentage of loans at end of period

   2.31     2.68

Covered Assets

Total covered assets increased during the second quarter of 2010 to $218.4 million, compared to $146.6 million at December 31, 2009. Covered loans increased to $192.5 million at the end of the second quarter as a result of the acquisition of SCB on May 14, 2010.

The Company has acquired three banks in FDIC-assisted acquisitions since October, 2009. Collection activity has accelerated in the most recent quarter, causing an increase in loans moving from active loan status to OREO. The Company expects a continued pace of resolution for several additional quarters.

At the end of the second quarter of 2010, the Company had recorded a receivable from the FDIC totaling approximately $59.2 million, representing the portion of losses and expenses for which the Company could expect reimbursement under the loss-share agreements. The Company has experienced $25.0 million of losses and related collection expenses through June 30, 2010. The Company has submitted timely certificates for repayment covering 80% of the losses and expenses to the FDIC.

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. Management performs a detailed review and valuation assessment of impaired loans on a quarterly basis and recognizes losses when permanent impairment is identified. 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.

For the quarter ended June 30, 2010, nonaccrual or impaired loans totaled $92.4 million, a decrease of approximately $3.8 million since December 31, 2009. The decrease in nonaccrual loans is due to success in the foreclosure and resolution process as well as a significant slowdown in the formation of new problem credits. Non-performing assets as a percentage of total assets were 5.61%, 4.85% and 3.85% at June 30, 2010, December 31, 2009 and June 30, 2009, respectively.

Non-performing assets at June 30, 2010, December 31, 2009 and June 30, 2009 were as follows:

 

(Dollars in Thousands)

   June 30,
2010
   December 31,
2009
   June 30,
2009

Total nonaccrual loans

   $ 92,336    $ 96,131    $ 68,858

Accruing loans delinquent 90 days or more

     —        —        —  

Other real estate owned and repossessed collateral

     41,079      21,551      19,180
                    

Total non-performing assets

   $ 133,415    $ 117,682    $ 88,038
                    

Other Real Estate Owned

For the six months ended June 30, 2010, the Company sold 40 foreclosed assets for an aggregate total of $11.7 million. During the same period, the Company foreclosed on 147 properties with an aggregate estimated value of $39.6 million. For the year to date period ended June 30, 2010, 31.1% of the newly foreclosed properties were construction and development properties, 41.0% were residential properties and 27.6% were commercial real estate properties.

 

23


Table of Contents

Commercial Lending Practices

On December 12, 2006, the Federal Bank Regulatory Agencies released guidance on Concentration in Commercial Real Estate Lending. This guidance defines commercial real estate (“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:

 

  (1)

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

 

  (2)

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 are required 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, 2010, the Company exhibited a concentration in CRE loan category based on Federal Reserve Call codes. The primary risks of CRE lending are:

 

  (1)

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;

 

  (2)

on average, CRE loan sizes are generally larger than non-CRE loan types; and

 

  (3)

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, 2010 and December 31, 2009. The loan categories and concentrations below are based on Federal Reserve Call codes and include “covered” loans.

 

(Dollars in Thousands)    June 30, 2010     December 31, 2009  
     Balance    % of Total
Loans
    Balance    % of Total
Loans
 

Construction and development loans

   $ 224,907    13   $ 259,412    15

Multi-family loans

     46,417    3     49,158    3

Nonfarm non-residential loans

     649,040    39     758,369    44
                          

Total CRE Loans

   $ 920,364    55   $ 1,066,939    62

All other loan types

     765,307    45     646,717    38
                          

Total Loans

   $ 1,685,671    100   $ 1,713,656    100
                          

The following table outlines the percent of total CRE loans, net owner occupied loans to total risk-based capital, and the Company’s internal concentration limits as of June 30, 2010 and December 31, 2009.

 

     Internal
Limit
    June 30,
2010
    December 31,
2009
 
       Actual     Actual  

Construction and development

   100   71   181

Commercial real estate

   300   337   358

Short-Term Investments

The Company’s short-term investments are comprised of federal funds sold and interest bearing balances. At June 30, 2010, the Company’s short-term investments were $240.1 million, compared to $220.3 million and $163.3 million at December 31, 2009 and June 30, 2009, respectively. At June 30, 2010 approximately 90.0% of the balance was comprised of interest bearing balances in other banks, the majority of which were at the FHLB.

 

24


Table of Contents

Derivative Instruments and Hedging Activities

As of June 30, 2010, the Company had one cash flow hedge with a notional amount totaling $35.0 million. The cash flow hedge is an interest rate floor with a total fair value of approximately $1.5 million and $1.9 million as of June 30, 2010 and December 31, 2009, respectively. The interest rate floor matures on August 15, 2011.

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 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 regulatory capital standards are defined by three key measurements.

 

  a)

The “Leverage Ratio” is defined as Tier 1 capital to average assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a leverage ratio greater than or equal to 4.00%. For a bank to be considered “well capitalized” a bank must maintain a leverage ratio greater than or equal to 5.00%.

 

  b)

The “Core Capital Ratio” is defined as Tier 1 capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a core capital ratio greater than or equal to 4.00%. For a bank to be considered “well capitalized” a bank must maintain a core capital ratio greater than or equal to 6.00%.

 

  c)

The “Total Capital Ratio” is defined as total capital to total risk weighted assets. To be considered “adequately capitalized” under this measurement, a bank must maintain a total capital ratio greater than or equal to 8.00%. For a bank to be considered “well capitalized” a bank must maintain a total capital ratio greater than or equal to 10.00%.

As of June 30, 2010, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. The following table sets forth the Bank’s ratios at June 30, 2010, December 31, 2009 and June 30, 2009.

 

 

     June 30,
2010
    December 31,
2009
    June 30,
2009
 

Leverage Ratio (tier 1 capital to average assets)

   12.19   9.61   7.40

Core Capital Ratio (tier 1 capital to risk weighted assets)

   18.08   13.27   9.63

Total Capital Ratio (total capital to risk weighted assets)

   19.34   14.53   10.89

 

25


Table of Contents

Recent Developments

On November 21, 2008, the Company, elected to participate in the Capital Purchase Program (“CPP”) established under the Emergency Economic Stabilization Act of 2008 (“EESA”). Accordingly, on such date, the Company issued and sold to the United States Treasury (“Treasury”), for an aggregate cash purchase price of $52 million, (i) 52,000 shares (the “Preferred Shares”) of the Company’s fixed rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share, and (ii) a ten-year warrant (the “Warrant”) to purchase up to 679,443 shares of the Common Stock at an exercise price of $11.48 per share. The issuance and sale of these securities was a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

Cumulative dividends on the Preferred Shares will accrue on the liquidation preference at a rate of 5% per annum for the first five years and at a rate of 9% per annum thereafter, but such dividends will be paid only if, as and when declared by the Company’s Board of Directors. The Preferred Shares have no maturity date and rank senior to the Common Stock (and pari passu with the Company’s other authorized preferred stock, of which no shares are currently designated or outstanding) with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of the Company. Subject to the approval of the Board of Governors of the Federal Reserve System, the Preferred Shares are redeemable at the option of the Company at 100% of their liquidation preference

The Purchase Agreement pursuant to which the Preferred Shares and the Warrant were sold contains limitations on the payment of dividends on the Common Stock (including with respect to the payment of cash dividends in excess of $0.05 per share, which was the amount of the last regular dividend declared by the Company prior to October 14, 2008) and on the Company’s ability to repurchase its Common Stock, and subjects the Company to certain of the executive compensation limitations included in the EESA.

Interest Rate Sensitivity and Liquidity

The Company’s primary market risk exposures are credit, interest rate risk, and to a lesser degree, liquidity risk. The Bank operates under an Asset Liability Management Policy approved by the Company’s Board of Directors and the Asset and Liability Committee (the “ALCO Committee”). The policy outlines limits on interest rate risk in terms of changes in net interest income and changes in the net market values of assets and liabilities over certain changes in interest rate environments. These measurements are made through a simulation model which projects the impact of changes in interest rates on the Bank’s assets and liabilities. The policy also outlines responsibility for monitoring interest rate risk, and the process for the approval, implementation and monitoring of interest rate risk strategies to achieve the Bank’s interest rate risk objectives.

The ALCO Committee is comprised of senior officers of Ameris and two outside members of the Company’s Board of Directors. The ALCO Committee makes all strategic decisions with respect to the sources and uses of funds that may affect net interest income, including net interest spread and net interest margin. The objective of the ALCO Committee is to identify the interest rate, liquidity and market value risks of the Company’s balance sheet and use reasonable methods approved by the Company’s Board of Directors and executive management to minimize those identified risks.

The normal course of business activity exposes the Company to interest rate risk. Interest rate risk is managed within an overall asset and liability framework for the Company. The principal objectives of asset and liability management are to predict the sensitivity of net interest spreads to potential changes in interest rates, control risk and enhance profitability. Funding positions are kept within predetermined limits designed to properly manage risk and liquidity. The Company employs sensitivity analysis in the form of a net interest income simulation to help characterize the market risk arising from changes in interest rates. In addition, fluctuations in interest rates usually result in changes in the fair market value of the Company’s financial instruments, cash flows and net interest income. The Company’s interest rate risk position is managed by the ALCO Committee.

The Company uses a simulation modeling process to measure interest rate risk and evaluate potential strategies. Interest rate scenario models are prepared using software created and licensed from an outside vendor. The Company’s simulation includes all financial assets and liabilities. Simulation results quantify interest rate risk under various interest rate scenarios. Management then develops and implements appropriate strategies. ALCO has determined that an acceptable level of interest rate risk would be for net interest income to decrease no more than 5.00% given a change in selected interest rates of 200 basis points over any 24 month period.

Liquidity management involves the matching of the cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs, and the ability of Ameris to manage those requirements. The Company strives to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance it has in short-term investments at any given time will adequately cover any reasonably anticipated immediate need for funds. Additionally, the Bank maintains relationships with correspondent banks, which could provide funds on short notice, if needed. The Company has invested in FHLB stock for the purpose of establishing credit lines with the FHLB. The credit availability to the Bank is equal to 20% of the Bank’s total assets as reported on the most recent quarterly financial information submitted to the regulators subject to the pledging of sufficient collateral. At June 30, 2010 there was no advances outstanding on any of the Company’s lines of credit.

 

26


Table of Contents

The following liquidity ratios compare certain assets and liabilities to total deposits or total assets:

 

     June 30,
2010
    March 31,
2010
    December 31,
2009
    September 30,
2009
    June 30,
2009
 

Investment securities available for sale to total deposits

   11.44   11.88   11.57   13.31   13.04

Loans (net of unearned income) to total deposits

   81.04   79.50   81.09   87.56   84.85

Interest-earning assets to total assets

   89.65   90.00   90.55   91.63   92.01

Interest-bearing deposits to total deposits

   89.52   89.35   88.84   89.10   89.35

The liquidity resources of the Company are monitored continuously by the ALCO Committee and on a periodic basis by state and federal regulatory authorities. As determined under guidelines established by these regulatory authorities, the Company’s and the Bank’s liquidity ratios at June 30, 2010 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed only to U.S. dollar interest rate changes, and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company’s hedging activities are limited to cash flow hedges and are part of the Company’s program to manage interest rate sensitivity. At June 30, 2010, the Company had one effective interest rate floor with a notional amount totaling $35 million. The floor is hedging specific cash flows associated with variable rate loans, has a strike rate of 7.00% and matures August 2011. Additionally, the Company has no exposure to foreign currency exchange rate risk, commodity price risk and other market risks.

Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as “interest rate risk”. The repricing of interest-earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of the Company’s asset/liability management program, the timing of repriced assets and liabilities is referred to as “Gap management”.

The Company uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining and flat interest rate scenarios allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. The analysis of the impact on net interest income over a twelve-month period is subjected to a gradual 200 basis point increase or decrease in market rates on net interest income and is monitored on a quarterly basis.

Additional information required by Item 305 of Regulation S-K is set forth under Part I, Item 2 of this report.

Item 4. Controls and Procedures.

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act), as of the end of the period covered by this report, as required by paragraph (b) of Rules 13a-15 or 15d-15 of the Exchange Act. Based on such evaluation, such officers have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.

During the quarter ended June 30, 2010, there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

27


Table of Contents

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Nothing to report with respect to the period covered by this report.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in Item 1A. of Part 1 in our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits required to be furnished with this report are listed on the exhibit index attached hereto.

 

28


Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: August 9, 2010

 

AMERIS BANCORP

 

/s/ Dennis J. Zember Jr.

 

Dennis J. Zember Jr., Executive Vice President and

Chief Financial Officer (duly authorized signatory

and principal accounting and financial officer)

 

29


Table of Contents

EXHIBIT INDEX

 

Exhibit No.

  

Description

3.1    Articles of Incorporation of Ameris Bancorp, as amended (incorporated by reference to Exhibit 2.1 to Ameris Bancorp’s Regulation A Offering Statement on Form 1-A filed with the Commission on August 14, 1987).
3.2    Amendment to Amended Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1.1 to Ameris Bancorp’s Form 10-K filed with the Commission on March 28, 1996).
3.3    Amendment to Amended Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 4.3 to Ameris Bancorp’s Registration Statement on Form S-4 filed with the Commission on July 17, 1996).
3.4    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.5 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 25, 1998).
3.5    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.7 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 26, 1999).
3.6    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.9 to Ameris Bancorp’s Annual Report on Form 10-K filed with the Commission on March 31, 2003).
3.7    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on December 1, 2005).
3.8    Articles of Amendment to the Articles of Incorporation of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on November 21, 2008).
3.9    Amended and Restated Bylaws of Ameris Bancorp (incorporated by reference to Exhibit 3.1 to Ameris Bancorp’s Current Report on Form 8-K filed with the Commission on March 14, 2005).
31.1    Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Executive Officer
31.2    Rule 13a-14(a)/15d-14(a) Certification by the Company’s Chief Financial Officer
32.1    Section 1350 Certification by the Company’s Chief Executive Officer
32.2    Section 1350 Certification by the Company’s Chief Financial Officer

 

30