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 September
30, 2008
OR
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Commission
File Number: 001-13901
|
AMERIS
BANCORP
|
|
(Exact
name of registrant as specified in its
charter)
|
|
GEORGIA
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58-1456434
|
|
|
(State
of incorporation)
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(IRS
Employer ID No.)
|
|
24
SECOND AVE., SE MOULTRIE, GA 31768
|
|
(Address
of principal executive offices)
|
|
(229)
890-1111
|
|
(Registrant’s
telephone number)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated
filer", "accelerated filer" and "smaller reporting company” in Rule
12b-2 of the Securities Exchange Act. (Check one):
|
Large
accelerated filer o
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Accelerated
filer x
|
Smaller
Reporting Company o
|
|
Non-accelerated filer o (Do not check if
smaller reporting company)
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act).Yes o No x
There
were 13,565,766 shares of Common Stock outstanding as of November 5,
2008.
AMERIS
BANCORP
|
PART
I - FINANCIAL INFORMATION
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Page
|
|
|
Item
1.
|
Financial
Statements
|
|
|
3
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||
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4
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||
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5
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||
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6
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||
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Item
2.
|
12
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|
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Item
3.
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23
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|
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Item
4.
|
24
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|
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PART
II - OTHER INFORMATION
|
||
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Item
1.
|
25
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|
|
Item
1A.
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25
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|
|
Item
2.
|
25
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|
|
Item
3.
|
25
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|
|
Item
4.
|
26
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|
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Item
5.
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26
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|
|
Item
6.
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26
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|
|
27
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||
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AMERIS
BANCORP AND SUBSIDIARIES
|
||||||||||||
|
CONSOLIDATED
BALANCE SHEETS
|
||||||||||||
|
(dollars
in thousands)
|
||||||||||||
|
September
30,
|
December
31,
|
September
30,
|
||||||||||
|
2008
|
2007
|
2007
|
||||||||||
|
(Unaudited)
|
(Audited)
|
(Unaudited)
|
||||||||||
|
Assets
|
||||||||||||
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Cash
and due from banks
|
$
|
43,549
|
$
|
59,804
|
$
|
58,281
|
||||||
|
Federal
funds sold & interest bearing balances
|
75,458
|
12,022
|
22,910
|
|||||||||
|
Securities
available for sale, at fair value
|
287,790
|
291,170
|
301,977
|
|||||||||
|
Restricted
equity securities, at cost
|
9,836
|
7,559
|
8,729
|
|||||||||
|
Loans
|
1,710,109
|
1,614,048
|
1,593,014
|
|||||||||
|
Less: allowance for loan losses
|
30,144
|
27,640
|
26,434
|
|||||||||
|
Loans,
net
|
1,679,965
|
1,586,408
|
1,566,580
|
|||||||||
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Premises
and equipment, net
|
65,868
|
59,132
|
54,639
|
|||||||||
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Intangible
assets, net
|
3,924
|
4,802
|
5,126
|
|||||||||
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Goodwill
|
54,813
|
54,813
|
54,675
|
|||||||||
|
Other
assets
|
36,440
|
36,353
|
30,222
|
|||||||||
|
Total assets
|
$
|
2,257,643
|
$
|
2,112,063
|
$
|
2,103,139
|
||||||
|
Liabilities
and Stockholders' Equity
|
||||||||||||
|
Deposits:
|
||||||||||||
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Noninterest-bearing
|
$
|
198,900
|
$
|
197,345
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$
|
192,707
|
||||||
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Interest-bearing
|
1,607,439
|
1,559,920
|
1,515,148
|
|||||||||
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Total
deposits
|
1,806,339
|
1,757,265
|
1,707,855
|
|||||||||
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Federal
funds purchased & securities sold under agreements to
repurchase
|
63,973
|
14,705
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32,359
|
|||||||||
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Other
borrowings
|
138,600
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90,500
|
116,500
|
|||||||||
|
Other
liabilities
|
13,118
|
16,075
|
15,560
|
|||||||||
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Subordinated
deferrable interest debentures
|
42,269
|
42,269
|
42,269
|
|||||||||
|
Total liabilities
|
2,064,299
|
1,920,814
|
1,914,543
|
|||||||||
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Stockholders'
Equity
|
||||||||||||
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Preferred
stock, par value$1; 5,000,000 shares authorized; zero shares issued or
outstanding
|
0
|
0
|
0
|
|||||||||
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Common
stock, par value $1; 30,000,000 shares authorized; 14,895,134,
14,869,924 and 14,867,934 issued
|
14,895
|
14,870
|
14,869
|
|||||||||
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Capital
surplus
|
83,453
|
82,750
|
82,308
|
|||||||||
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Retained
earnings
|
105,117
|
103,095
|
103,805
|
|||||||||
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Accumulated
other comprehensive income(loss)
|
666
|
1,303
|
(1,617
|
)
|
||||||||
|
Treasury
stock, at cost, 1,331,102, 1,329,939 and 1,326,458
shares
|
(10,787
|
)
|
(10,769
|
)
|
(10,769
|
)
|
||||||
|
Total stockholders' equity
|
193,344
|
191,249
|
188,596
|
|||||||||
|
Total liabilities and stockholders' equity
|
$
|
2,257,643
|
$
|
2,112,063
|
$
|
2,103,139
|
||||||
See
notes to unaudited consolidated financial statements.
|
AMERIS
BANCORP AND SUBSIDIARIES
|
||||||||||||||||
|
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME
|
||||||||||||||||
|
(dollars
in thousands, except per share data)
|
||||||||||||||||
|
(Unaudited)
|
||||||||||||||||
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
|
September
30,
|
September
30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Interest
Income
|
||||||||||||||||
|
Interest
and fees on loans
|
$
|
28,280
|
$
|
33,479
|
$
|
86,752
|
$
|
95,811
|
||||||||
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Interest
on taxable securities
|
3,563
|
3,480
|
10,793
|
10,252
|
||||||||||||
|
Interest
on nontaxable securities
|
169
|
175
|
514
|
530
|
||||||||||||
|
Interest
on deposits in other banks and federal funds sold
|
100
|
317
|
391
|
2,109
|
||||||||||||
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Total
Interest Income
|
32,112
|
37,451
|
98,450
|
108,702
|
||||||||||||
|
Interest
Expense
|
||||||||||||||||
|
Interest
on deposits
|
11,717
|
15,877
|
38,173
|
46,621
|
||||||||||||
|
Interest
on other borrowings
|
1,218
|
2,493
|
3,584
|
6,252
|
||||||||||||
|
Total
Interest Expense
|
12,935
|
18,370
|
41,757
|
52,873
|
||||||||||||
|
Net
Interest Income
|
19,177
|
19,081
|
56,693
|
55,829
|
||||||||||||
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Provision
for Loan Losses
|
8,220
|
2,964
|
15,140
|
4,407
|
||||||||||||
|
Net
Interest Income After Provision for Loan Losses
|
10,957
|
16,117
|
41,553
|
51,422
|
||||||||||||
|
Noninterest
Income
|
||||||||||||||||
|
Service
charges on deposit accounts
|
3,657
|
3,197
|
10,637
|
9,133
|
||||||||||||
|
Mortgage
banking activity
|
745
|
783
|
2,469
|
2,265
|
||||||||||||
|
Other
service charges, commissions and fees
|
120
|
203
|
618
|
1,008
|
||||||||||||
|
Gain
on sale of securities
|
-
|
(69
|
)
|
-
|
(61
|
)
|
||||||||||
|
Other
noninterest income
|
117
|
477
|
1,070
|
1,414
|
||||||||||||
|
Total
Noninterest Income
|
4,639
|
4,591
|
14,794
|
13,759
|
||||||||||||
|
Noninterest
Expense
|
||||||||||||||||
|
Salaries
and employee benefits
|
7,113
|
7,438
|
24,392
|
22,662
|
||||||||||||
|
Equipment
and occupancy expense
|
1,904
|
1,757
|
5,999
|
5,151
|
||||||||||||
|
Amortization
of intangible assets
|
293
|
324
|
878
|
973
|
||||||||||||
|
Data
processing fees
|
1,238
|
1,110
|
3,557
|
3,436
|
||||||||||||
|
Other
operating expenses
|
4,213
|
4,540
|
11,537
|
11,171
|
||||||||||||
|
Total
Noninterest Expense
|
14,761
|
15,169
|
46,363
|
43,393
|
||||||||||||
|
Net
Income Before Taxes
|
835
|
5,539
|
9,984
|
21,788
|
||||||||||||
|
Provision
for Income Taxes
|
469
|
1,969
|
3,504
|
7,821
|
||||||||||||
|
Net
Income
|
$
|
366
|
$
|
3,570
|
$
|
6,480
|
$
|
13,967
|
||||||||
|
Other
Comprehensive Income, Net of Tax
|
||||||||||||||||
|
Unrealized
holding gain/(loss) arising during period, net of
tax
|
856
|
(941)
|
571
|
(316
|
)
|
|||||||||||
|
Unrealized
gain/(loss) on cashflow hedge arising during period, net of
tax
|
100
|
306
|
300
|
98
|
||||||||||||
|
Reclassification
for losses included in net income, net of tax
|
-
|
-
|
41
|
203
|
||||||||||||
|
Comprehensive
Income
|
$
|
1,322
|
$
|
2,935
|
$
|
7,393
|
$
|
13,952
|
||||||||
|
Basic
earnings per share
|
$
|
0.03
|
$
|
0.26
|
$
|
0.48
|
$
|
1.04
|
||||||||
|
Diluted
earnings per share
|
$
|
0.03
|
$
|
0.26
|
$
|
0.48
|
$
|
1.02
|
||||||||
|
Dividends
declared per share
|
$
|
0.05
|
$
|
0.14
|
$
|
0.33
|
$
|
0.42
|
||||||||
See
notes to unaudited consolidated financial statements.
|
AMERIS
BANCORP AND SUBSIDIARIES
|
||||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
|
(dollars
in thousands)
|
||||||||
|
(Unaudited)
|
||||||||
|
Nine
Months Ended
|
||||||||
|
September
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Cash
Flows From Operating Activities:
|
||||||||
|
Net
Income
|
$
|
6,480
|
$
|
13,967
|
||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
|
Depreciation
|
2,400
|
2,299
|
||||||
|
Net
loss on sale or disposal of premises and equipment
|
(38
|
)
|
-
|
|||||
|
Net
gain/(loss) on sale of other real estate owned
|
(41
|
)
|
(2,267
|
)
|
||||
|
Provision
for loan losses
|
15,140
|
4,407
|
||||||
|
Amortization
of intangible assets
|
878
|
973
|
||||||
|
Other
prepaids, deferrals and accruals, net
|
(5,808
|
)
|
(7,104
|
)
|
||||
|
Net cash provided by operating
activities
|
19,011
|
12,275
|
||||||
|
Cash
Flows From Investing Activities:
|
||||||||
|
Net
decrease/(increase) in federal funds sold & interest bearing
deposits
|
(63,437
|
)
|
112,322
|
|||||
|
Proceeds
from maturities of securities available for sale
|
59,800
|
24,379
|
||||||
|
Purchase
of securities available for sale
|
(57,843
|
)
|
(52,273
|
)
|
||||
|
Proceeds
from sales of securities available for sale
|
-
|
10,153
|
||||||
|
Net
increase in loans
|
(116,705
|
)
|
(151,623
|
)
|
||||
|
Proceeds
from sales of other real estate owned
|
11,266
|
2,267
|
||||||
|
Purchases
of premises and equipment
|
(10,753
|
)
|
(10,333
|
)
|
||||
|
Net cash used in investing
activities
|
(177,672
|
)
|
(65,108
|
)
|
||||
|
Cash
Flows From Financing Activities:
|
||||||||
|
Net
increase/(decrease) in deposits
|
49,075
|
(2,309
|
)
|
|||||
|
Net
increase in federal funds purchased & securities sold under agreements
to repurchase
|
49,268
|
16,426
|
||||||
|
Net
increase in other borrowings
|
48,100
|
41,000
|
||||||
|
Dividends
paid
|
(4,476
|
)
|
(5,685
|
)
|
||||
|
Purchase
of treasury shares
|
(18
|
)
|
(176
|
)
|
||||
|
Decrease
in unfunded obligation on Islands acquisition
|
-
|
(5,120
|
)
|
|||||
|
Proceeds
from exercise of stock options
|
457
|
122
|
||||||
|
Net cash provided by
financing activities
|
142,406
|
44,258
|
||||||
|
Net
decrease in cash and due from banks
|
$
|
(16,255
|
)
|
$
|
(8,575
|
)
|
||
|
Cash
and due from banks at beginning of period
|
59,804
|
66,856
|
||||||
|
Cash
and due from banks at end of period
|
$
|
43,549
|
$
|
58,281
|
||||
See
notes to unaudited consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Note
1 - Basis of Presentation & Accounting Policies
Ameris
Bancorp (the “Company” or “Ameris”) is a financial holding company headquartered
in Moultrie, Georgia. Ameris conducts the majority of its operations
through its wholly owned banking subsidiary, Ameris Bank (the
“Bank”). Ameris Bank currently operates 50 branches
in Georgia, Alabama, Northern Florida and South Carolina. Our
business model capitalizes on the efficiencies of a large financial services
company while still providing the community with the personalized banking
service expected by our customers. We manage our Bank through a
balance of decentralized management responsibilities and efficient centralized
operating systems, products and loan underwriting standards. Ameris’
board of directors and senior managers establish corporate policy, strategy and
administrative policies. Within Ameris’ established guidelines and
policies, each advisory board and senior managers make lending and
community-specific decisions. This approach allows the banker closest
to the customer to respond to the differing needs and demands of their unique
market.
The
accompanying unaudited consolidated financial statements for Ameris have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and Regulation S-X.
Accordingly, the financial statements do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statement presentation. The
interim consolidated financial statements included herein are unaudited, but
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of the consolidated financial position and results of
operations for the interim periods presented. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The results of operations for the nine months and
quarter ended September 30, 2008 are not necessarily indicative of the results
to be expected for the full year. These financial statements should
be read in conjunction with the financial statements and notes thereto and the
report of our registered independent public accounting firm included in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2007.
Certain
amounts reported for the periods ended September 30, 2007 and December
31, 2007 have been reclassified to conform with the presentation as of September
30, 2008. These reclassifications had no effect on previously
reported net income or stockholders' equity.
Newly
Adopted Accounting Pronouncements
Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. SFAS 157 has been applied prospectively as
of the beginning of the period.
SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. SFAS 157 also establishes a fair value
hierarchy which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair
value. The standard describes three levels of inputs that may be used
to measure fair value:
Level 1 - Quoted prices in
active markets for identical assets or liabilities.
Level 2 - Observable inputs
other than Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in active markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs
that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities.
Following
is a description of the valuation methodologies used for instruments measured at
fair value, as well as the general classification of such instruments pursuant
to the valuation hierarchy.
Securities Available for Sale – The fair value of
securities available for sale is determined by various valuation
methodologies. Where quoted market prices are available in an active
market, securities are classified within Level 1 of the valuation
hierarchy. If quoted market prices are not available, then fair
values are estimated by using pricing models, quoted prices of securities with
similar characteristics, or discounted cash flows. Level 2 securities
include certain U.S. agency bonds, collateralized mortgage and debt obligations,
and certain municipal securities. In certain cases where Level 1 or
Level 2 inputs are not available, securities are classified within Level 3 of
the hierarchy and include certain residual municipal securities and other less
liquid securities.
Derivatives – The Company’s
current hedging strategies involve utilizing interest rate floors. The fair
value of derivatives is recognized as assets or liabilities in the financial
statements. The accounting for the change in the fair value of a
derivative depends on the intended use of the derivative instrument at
inception. As of September 30, 2008, the Company had cash flow hedges
with a notional amount of $70 million for the purpose of converting floating
rate assets to fixed rate.
Impaired Loans – Impaired
loans are carried at the present value of estimated future cash flows using the
loan's existing rate, or the fair value of collateral if the loan is collateral
dependent. A portion of the allowance for loan losses is
allocated to impaired loans if the value of such loans is deemed to be less than
the unpaid balance. If these allocations cause the allowance for loan
losses to increase, such increase is reported as a component of the provision
for loan losses. Loan losses are charged against the allowance when
management believes the uncollectability of a loan is
confirmed. Throughout the quarter certain impaired loans were
partially charged-off or re-evaluated for impairment resulting in a remaining
balance for these loans. The fair value of these impaired loans
is considered Level 3, and was computed by analysis of appraisals of the
underlying collateral and discounted cash flow analysis.
Other Real Estate Owned – The
fair value of other real estate owned ("OREO") is determined using certified
appraisals that value the property at its highest and best uses by applying
traditional valuation methods common to the industry. The Company does not
hold any OREO for profit purposes and all other real estate is actively marketed
for sale.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115. The standard provides companies with an option to report
selected financial assets and liabilities at fair value. Unrealized
gains and losses on items for which the fair value option has been elected will
be reported in earnings. The objective of SFAS No. 159 is to improve
financial reporting by providing entities with the chance to mitigate volatility
in reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting
standards. This standard is expected to expand the use of fair value
measurement, which is consistent with the FASB’s long-term measurement
objectives for accounting for financial instruments. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. The
Company has not elected the fair value option for any financial assets or
liabilities as of September 30, 2008.
The
following table presents the fair value measurements of assets and liabilities
measured at fair value on a recurring basis and the level within the FAS 157
fair value hierarchy in which the fair value measurements fall as of September
30, 2008:
|
Fair
Value Measurements Using
|
||||||||||||||||
|
Quoted
Prices
|
||||||||||||||||
|
in
Active
|
Significant
|
|||||||||||||||
|
Markets for
|
Other
|
Significant
|
||||||||||||||
|
Identical
|
Observable
|
Unobservable
|
||||||||||||||
|
Assets
|
Inputs
|
Inputs
|
||||||||||||||
|
Fair
Value
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||||
|
Securities
available for sale
|
$
|
287,790
|
$
|
535
|
$
|
283,187
|
$
|
4,068
|
||||||||
|
Derivative
financial instruments
|
1,907
|
1,907
|
||||||||||||||
|
Impaired
loans carried at fair value
|
11,030
|
11,030
|
||||||||||||||
|
Other
real estate owned
|
3,734
|
3,734
|
||||||||||||||
|
Total
assets at fair value
|
$
|
304,461
|
$
|
535
|
$
|
285,094
|
$
|
18,832
|
||||||||
Note
2 - Investment Securities
Ameris’
investment policy blends the needs of the Company’s liquidity and interest rate
risk with its desire to improve income and provide funds for expected growth in
loans. Under this policy, the Company generally invests in
obligations of the United States Treasury or other governmental or
quasi-governmental agencies. Ameris’ portfolio and investing
philosophy concentrate activities in obligations where the credit risk is
limited. For the small portion of Ameris’ portfolio that has
been found to present credit risk, the Company has reviewed the investments and
financial performance of the obligors and believes the credit risk to
be acceptable.
The
amortized cost and estimated fair value of investment securities available for
sale at September 30, 2008, December 31, 2007 and September 30, 2007 are
presented below:
|
September
30, 2008
|
||||||||||||||||
|
(dollars
in thousands)
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Estimated
Fair Value
|
||||||||||||
|
U.
S. Government sponsored agencies
|
$
|
58,875
|
$
|
229
|
$
|
(736
|
)
|
$
|
58,368
|
|||||||
|
State
and municipal securities
|
18,502
|
244
|
(135
|
)
|
18,611
|
|||||||||||
|
Corporate
debt securities
|
12,709
|
83
|
(1,022
|
)
|
11,770
|
|||||||||||
|
Mortgage
backed securities
|
196,461
|
1,422
|
(630
|
)
|
197,253
|
|||||||||||
|
Equity
securities
|
1,788
|
-
|
-
|
1,788
|
||||||||||||
|
$
|
288,335
|
$
|
1,978
|
$
|
(2,523
|
)
|
$
|
287,790
|
||||||||
|
December
31, 2007
|
||||||||||||||||
|
(dollars
in thousands)
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Estimated
Fair Value
|
||||||||||||
|
U.
S. Government sponsored agencies
|
$
|
69,562
|
$
|
366
|
$
|
(5
|
)
|
$
|
69,923
|
|||||||
|
State
and municipal securities
|
18,232
|
181
|
(93
|
)
|
18,320
|
|||||||||||
|
Corporate
debt securities
|
9,812
|
37
|
(351
|
)
|
9,498
|
|||||||||||
|
Mortgage-backed
securities
|
190,896
|
1,281
|
(536
|
)
|
191,641
|
|||||||||||
|
Equity
securities
|
1,788
|
-
|
-
|
1,788
|
||||||||||||
|
$
|
290,290
|
$
|
1,865
|
$
|
(985
|
)
|
$
|
291,170
|
||||||||
|
September
30, 2007
|
||||||||||||||||
|
(dollars
in thousands)
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Estimated
Fair Value
|
||||||||||||
|
U.
S. Government sponsored agencies
|
$
|
104,097
|
$
|
88
|
$
|
(780
|
)
|
$
|
103,405
|
|||||||
|
State
and municipal securities
|
18,428
|
47
|
(139
|
)
|
18,336
|
|||||||||||
|
Corporate
debt securities
|
9,784
|
34
|
(91
|
)
|
9,727
|
|||||||||||
|
Mortgage-backed
securities
|
170,477
|
243
|
(2,010
|
)
|
168,710
|
|||||||||||
|
Equity
securities
|
1,788
|
11
|
-
|
1,799
|
||||||||||||
|
$
|
304,574
|
$
|
423
|
$
|
(3,020
|
)
|
$
|
301,977
|
||||||||
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 on real estate loans where the historical loss
percentages have been low. While risk of loss in the Company’s
portfolio is primarily tied to the credit quality of the various borrowers, risk
of loss may increase due to factors beyond Ameris’ control, such as local,
regional and/or national economic downturns. General conditions in
the real estate market may also impact the relative risk in the real estate
portfolio.
The
Company evaluates loans for impairment when loans are risk rated as
substandard or worse. The Company measures impairment based upon the
present value of the loan’s expected future cash flows discounted at the loan’s
effective interest rate, except where foreclosure or liquidation is probable or
when the primary source of repayment is provided by real estate
collateral. In these circumstances, impairment is measured based upon
the estimated fair value of the collateral. In addition, in certain
circumstances, impairment may be based on the loan’s observable estimated fair
value. Impairment with regard to substantially all of Ameris’
impaired loans has been measured based on the estimated fair value of the
underlying collateral. At the time the contractual principal payments
on a loan are deemed to be uncollectible, Ameris’ policy is to record a
charge-off against the allowance for loan losses.
Nonperforming
assets include loans classified as nonaccrual or renegotiated and foreclosed or
repossessed assets. It is the general policy of the Company to stop
accruing interest income and place the recognition of interest on a cash basis
when any commercial, industrial or commercial real estate loan is 90 days or
more past due as to principal or interest and/or the ultimate collection of
either is in doubt, unless collection of both principal and interest is assured
by way of collateralization, guarantees or other security. When a
loan is placed on nonaccrual status, any interest previously accrued but not
collected is reversed against current income unless the collateral for the loan
is sufficient to cover the accrued interest or a guarantor assures payment of
interest.
Loans are
stated at unpaid balances, net of unearned income and deferred loan fees.
Balances within the major loans receivable categories are represented in the
following table:
|
(dollars
in thousands)
|
September
30, 2008
|
December
31, 2007
|
September
30, 2007
|
|||||||||
|
Commercial,
financial & agricultural
|
$
|
205,565
|
$
|
188,652
|
$
|
206,584
|
||||||
|
Real
estate – residential
|
419,697
|
386,736
|
356,156
|
|||||||||
|
Real
estate – commercial & farmland
|
661,619
|
592,177
|
576,684
|
|||||||||
|
Real
estate – construction & development
|
360,160
|
383,317
|
392,823
|
|||||||||
|
Consumer
installment
|
52,769
|
55,114
|
55,796
|
|||||||||
|
Other
|
10,299
|
8,052
|
4,971
|
|||||||||
|
$
|
1,710,109
|
$
|
1,614,048
|
$
|
1,593,014
|
|||||||
Note
4 - Allowance for Loan Losses
Activity
in the allowance for loan losses for the nine months
ended September 30, 2008, for the year ended December 31, 2007 and for
the nine months ended September 30, 2007 is as follows:
|
(dollars
in thousands)
|
September
30, 2008
|
December
31, 2007
|
September
30, 2007
|
|||||||||
|
Balance,
January 1
|
$
|
27,640
|
$
|
24,863
|
$
|
24,863
|
||||||
|
Provision for loan losses charged to expense
|
15,140
|
11,321
|
4,407
|
|||||||||
|
Loans charged off
|
(13,691
|
)
|
(10,418
|
)
|
(3,922
|
)
|
||||||
|
Recoveries of loans previously charged off
|
1,055
|
1,874
|
1,086
|
|||||||||
|
Ending
balance
|
$
|
30,144
|
$
|
27,640
|
$
|
26,434
|
||||||
Management performs a
detailed review and valuation assessment of impaired loans on a quarterly basis
and recognizes losses when permanent impairment is identified. For the
quarter ended September 30, 2008, impaired loans totaled $24.2 million, compared
to $18.5 million at December 31, 2007. The increase is driven by higher
levels of non-accrual and past due loans and is reflective of declining real
estate values in certain of the Company’s operating markets, particularly values
of single family residential building lots and raw land. For the periods
ended September 30, 2008 and December 31 2007, the level of allowance for loan
losses related to impaired loans were $4.0 million and $3.0 million,
respecivley.
Note
5 – Goodwill and Intangible Assets
Goodwill represents the
excess of cost over the fair value of the net assets purchased in business
combinations. Goodwill is required to be tested annually for
impairment or whenever events occur that may indicate that the recoverability of
the carrying amount is not probable. In the event of an impairment,
the amount by which the carrying amount exceeds the fair value is charged to
earnings. The Company performed its annual test of impairment in the
fourth quarter and determined that there was no impairment in the carrying value
of goodwill assigned to its subsidiary Bank as of December 31,
2007.
Market conditions have
deteriorated since the end of 2007 with real estate activity and resulting
valuations becoming increasingly stressed and exposing areas of risk for which
the Company has had reduced clarity. Management has evaluated the carrying
value of its goodwill in light of these new market conditions and believes that
there is no impairment in the goodwill assigned to its subsidiary Bank at
September 30, 2008. Management’s
determination regarding potential impairment is based on estimates of the fair
value of the subsidiary Bank, using valuation methods based largely on multiples
of its earnings. While the subsidiary Bank’s earnings have been impacted
by market conditions and weaker than normal credit quality, the Bank’s earnings
and the corresponding multiples indicate that there is no impairment at the end
of the third quarter of 2008. The Company has retained an outside
consultant to assess goodwill and intangible assets. The Company
anticipates receipt of the appraisal prior to year end.
Note
6 - Weighted Average Shares Outstanding
Earnings
per share have been computed based on the following weighted average number of
common shares outstanding:
|
For
the Three Months Ended September 30,
|
For
the Nine Months Ended September 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
(share
data in thousands)
|
(share
data in thousands)
|
|||||||||||||||
|
Basic
shares outstanding
|
13,516
|
13,502
|
13,508
|
13,477
|
||||||||||||
|
Plus: Dilutive effect of ISOs
|
16
|
117
|
35
|
161
|
||||||||||||
|
Plus: Dilutive effect of Restricted Grants
|
12
|
1
|
12
|
12
|
||||||||||||
|
Diluted
shares outstanding
|
13,544
|
13,620
|
13,555
|
13,650
|
||||||||||||
Note
7 – Other Borrowings
The
Company has certain borrowing arrangements with various financial institutions
that are used in the Company’s operations primarily to fund growth in earning
assets when appropriate spreads can be realized. At September 30,
2008, total other borrowings amounted to $138.6 million compared to $116.5
million at September 30, 2007. The majority of these balances are
comprised in the Company’s borrowing relationship with the FHLB of
Atlanta. Total borrowings at the FHLB were $133.6 million and $111.5
million at September 30, 2008 and 2007, respectively. The $22.1
million increase in FHLB borrowings was a result of management’s decision to off
set changes in loans that occured during the
quarter.
Note
8 – 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 these instruments reflect the extent of involvement the
Company has in particular classes of financial instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as are used for on-balance-sheet instruments.
Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
The
Company issues standby letters of credit, which are conditional commitments
issued to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public and
private borrowing arrangements and expire in decreasing amounts with varying
terms. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Company holds various assets as collateral supporting
those commitments for which collateral is deemed necessary.
The
Company evaluates each customer’s creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on management’s credit evaluation of
the borrower. Collateral held may include accounts receivable,
inventory, property, plant and equipment, residential real estate, and
income-producing commercial properties on those commitments for which collateral
is deemed necessary.
The
following table represents the Company’s commitments to extend credit and
standby letters of credit:
|
(dollars
in thousands)
|
September
30, 2008
|
September
30, 2007
|
||||||
|
Commitments
to extend credit
|
$
|
176,985
|
$
|
211,111
|
||||
|
Standby
letters of credit
|
$
|
8,281
|
$
|
8,275
|
||||
|
Item
2.
|
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
|
Certain statements
made in this report are “forward-looking statements” within the meaning of, and
subject to the protections of, Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). Forward-looking statements include statements with
respect to our beliefs, plans, objectives, goals, expectations, anticipations,
assumptions, estimates, intentions and future performance and involve known and
unknown risks, uncertainties and other factors, many of which may be beyond our
control and which may cause the actual results, performance or achievements of
the Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking
statements.
All
statements other than statements of historical fact are statements that could be
forward-looking statements. You can identify these forward-looking
statements through our use of words such as “may,” “will,” “anticipate,”
“assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,”
“estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,”
“intend,” “target,” “potential” and other similar words and expressions of the
future. These forward-looking statements may not be realized due to a
variety of factors, including, without limitation, legislative and regulatory
initiatives; additional competition in Ameris’ markets; potential business
strategies, including acquisitions or dispositions of assets or internal
restructuring, that may be pursued by Ameris; state and federal banking
regulations; changes in or application of environmental and other laws and
regulations to which Ameris is subject; political, legal and economic conditions
and developments; financial market conditions and the results of financing
efforts; changes in commodity prices and interest rates; weather, natural
disasters and other catastrophic events; and other factors discussed in Ameris’
filings with the Securities and Exchange Commission under the Exchange
Act.
All
written or oral forward-looking statements that are made by or are attributable
to us are expressly qualified in their entirety by this cautionary
notice. Our forward-looking statements apply only as of the date of
this report or the respective date of the document from which they are
incorporated herein by reference. We have no obligation and do not
undertake to update, revise or correct any of the forward-looking statements
after the date of this report, or after the respective dates on which such
statements otherwise are made, whether as a result of new information, future
events or otherwise.
The
following table sets forth unaudited selected financial data for the previous
five quarters. This data should be read in conjunction with the
consolidated financial statements and the notes thereto and the information
contained in this Item 2.
|
2008
|
2007
|
For
Nine Months Ended
|
||||||||||||||||||||||||||
|
(in
thousands, except share data, taxable equivalent)
|
Third
Quarter
|
Second
Quarter
|
First
Quarter
|
Fourth
Quarter
|
Third
Quarter
|
2008
|
2007
|
|||||||||||||||||||||
|
Results
of Operations:
|
||||||||||||||||||||||||||||
|
Net
interest income
|
$
|
19,177
|
$
|
19,056
|
$
|
18,460
|
$
|
19,248
|
$
|
19,081
|
$
|
56,693
|
$
|
55,829
|
||||||||||||||
|
Net
interest income (tax equivalent)
|
19,691
|
19,514
|
18,814
|
19,009
|
19,257
|
58,019
|
56,544
|
|||||||||||||||||||||
|
Provision
for loan losses
|
8,220
|
3,720
|
3,200
|
6,914
|
2,964
|
15,140
|
4,407
|
|||||||||||||||||||||
|
Non-interest
income
|
4,639
|
5,313
|
4,842
|
3,833
|
4,591
|
14,794
|
13,759
|
|||||||||||||||||||||
|
Non-interest
expense
|
14,761
|
15,962
|
15,640
|
15,502
|
15,169
|
46,363
|
43,394
|
|||||||||||||||||||||
|
Net
income
|
366
|
3,149
|
2,966
|
1,186
|
3,570
|
6,480
|
13,967
|
|||||||||||||||||||||
|
Selected
Average Balances:
|
||||||||||||||||||||||||||||
|
Loans,
net of unearned income
|
$
|
1,698,024
|
$
|
1,650,781
|
$
|
1,617,991
|
$
|
1,605,006
|
$
|
1,569,906
|
$
|
1,655,599
|
$
|
1,513,321
|
||||||||||||||
|
Investment
securities
|
299,564
|
307,304
|
291,708
|
297,380
|
299,925
|
299,525
|
298,251
|
|||||||||||||||||||||
|
Earning
assets
|
2,018,807
|
1,976,321
|
1,933,179
|
1,924,212
|
1,896,044
|
1,976,102
|
1,865,142
|
|||||||||||||||||||||
|
Assets
|
2,192,501
|
2,141,940
|
2,115,561
|
2,102,579
|
2,069,715
|
2,150,001
|
2,039,664
|
|||||||||||||||||||||
|
Deposits
|
1,792,821
|
1,764,067
|
1,748,961
|
1,725,383
|
1,695,239
|
1,768,616
|
1,693,501
|
|||||||||||||||||||||
|
Shareholders’
equity
|
186,541
|
192,605
|
193,971
|
191,124
|
187,290
|
191,039
|
184,829
|
|||||||||||||||||||||
|
Period-End
Balances:
|
||||||||||||||||||||||||||||
|
Loans,
net of unearned income
|
$
|
1,710,109
|
$
|
1,678,147
|
$
|
1,622,437
|
$
|
1,614,048
|
$
|
1,593,014
|
$
|
1,710,109
|
$
|
1,593,014
|
||||||||||||||
|
Earning
assets
|
2,083,193
|
2,019,525
|
1,931,411
|
1,924,799
|
1,926,630
|
2,083,193
|
1,926,630
|
|||||||||||||||||||||
|
Total
assets
|
2,257,643
|
2,193,021
|
2,118,243
|
2,112,063
|
2,103,139
|
2,257,643
|
2,103,139
|
|||||||||||||||||||||
|
Total
deposits
|
1,806,339
|
1,770,861
|
1,784,291
|
1,757,265
|
1,707,855
|
1,806,339
|
1,707,855
|
|||||||||||||||||||||
|
Shareholders’
equity
|
193,344
|
192,555
|
196,308
|
191,249
|
188,596
|
193,344
|
188,596
|
|||||||||||||||||||||
|
Per
Common Share Data:
|
||||||||||||||||||||||||||||
|
Basic
earnings per share
|
$
|
0.03
|
$
|
0.23
|
$
|
0.22
|
$
|
0.09
|
$
|
0.26
|
$
|
0.48
|
$
|
1.04
|
||||||||||||||
|
Diluted
earnings per share
|
0.03
|
0.23
|
0.22
|
0.09
|
0.26
|
0.48
|
1.02
|
|||||||||||||||||||||
|
Book
value per share
|
14.25
|
14.20
|
14.48
|
14.12
|
13.93
|
14.25
|
13.93
|
|||||||||||||||||||||
|
End
of period shares outstanding
|
13,564,032
|
13,564,032
|
13,556,770
|
13,539,985
|
13,539,195
|
13,564,032
|
13,539,195
|
|||||||||||||||||||||
|
Weighted
average shares outstanding
|
||||||||||||||||||||||||||||
|
Basic
|
13,515,767
|
13,510,907
|
13,497,344
|
13,485,765
|
13,501,663
|
13,508,006
|
13,477,065
|
|||||||||||||||||||||
|
Diluted
|
13,543,612
|
13,563,032
|
13,559,761
|
13,573,626
|
13,620,069
|
13,555,469
|
13,650,217
|
|||||||||||||||||||||
|
Market
Price:
|
||||||||||||||||||||||||||||
|
High
Closing Price
|
15.02
|
16.26
|
16.41
|
18.67
|
23.05
|
16.20
|
27.94
|
|||||||||||||||||||||
|
Low
Closing Price
|
7.79
|
8.70
|
12.49
|
13.73
|
17.72
|
7.79
|
17.72
|
|||||||||||||||||||||
|
Closing
Price for Quarter
|
14.85
|
8.70
|
16.06
|
16.85
|
18.08
|
14.85
|
18.08
|
|||||||||||||||||||||
|
Trading
volume (avg daily)
|
43,464
|
62,739
|
61,780
|
51,604
|
50,547
|
55,903
|
43,565
|
|||||||||||||||||||||
|
Cash
dividends per share
|
0.05
|
0.14
|
0.14
|
0.14
|
0.14
|
0.33
|
0.42
|
|||||||||||||||||||||
|
Price
to earnings
|
*N/M
|
9.45
|
18.25
|
15.18
|
12.38
|
*N/M
|
12.38
|
|||||||||||||||||||||
|
Price
to book value
|
1.04
|
0.61
|
1.11
|
1.19
|
1.30
|
1.04
|
1.30
|
|||||||||||||||||||||
|
Performance
Ratios:
|
||||||||||||||||||||||||||||
|
Return
on average assets
|
0.07
|
%
|
0.59
|
%
|
0.56
|
%
|
0.23
|
%
|
0.68
|
%
|
0.40
|
%
|
0.92
|
%
|
||||||||||||||
|
Return
on average equity
|
0.78
|
%
|
6.58
|
%
|
6.15
|
%
|
2.48
|
%
|
7.56
|
%
|
4.53
|
%
|
10.10
|
%
|
||||||||||||||
|
Loans/Deposits
(average)
|
94.71
|
%
|
93.58
|
%
|
92.51
|
%
|
93.02
|
%
|
92.61
|
%
|
93.61
|
%
|
89.36
|
%
|
||||||||||||||
|
Net
interest margin (tax equivalent)
|
3.87
|
%
|
3.96
|
%
|
3.91
|
%
|
3.92
|
%
|
4.03
|
%
|
3.92
|
%
|
4.05
|
%
|
||||||||||||||
|
Equity/Assets
(average)
|
8.51
|
%
|
8.99
|
%
|
9.17
|
%
|
9.09
|
%
|
9.05
|
%
|
8.88
|
%
|
9.06
|
%
|
||||||||||||||
|
Efficiency
ratio
|
61.98
|
%
|
65.50
|
%
|
67.12
|
%
|
67.21
|
%
|
64.08
|
%
|
64.86
|
%
|
62.36
|
%
|
||||||||||||||
*
N/M = Not Meaningful
Overview
The
following is management’s discussion and analysis of certain significant factors
which have affected the financial condition and results of operations of the
Company as reflected in the unaudited consolidated statement of condition as of
September 30, 2008 as compared to December 31, 2007 and operating results for
the three-month and nine-month periods ended September 30,
2007. These comments should be read in conjunction with the Company’s
unaudited consolidated financial statements and accompanying notes appearing
elsewhere herein.
Results
of Operations for the Three Months Ended September 30, 2008 and
2007
Consolidated
Earnings and Profitability
Ameris
reported net income of $366,000, or $0.03 per share, for the quarter ended
September 30, 2008, compared to net income for the same quarter in 2007 of $3.6
million, or $0.26 per share. The Company’s return on average assets
and average shareholders’ equity declined in the third quarter of 2008 to 0.07%
and 0.78%, respectively, compared to 0.68% and 7.56% in the third quarter of
2007. Decreasing credit quality and lower net interest margins are
the primary reasons for the declines in earnings and profitability
levels.
Net
Interest Income and Margins
On a tax
equivalent basis, net interest income for the third quarter of 2008 was $19.7
million, an increase of less than one percent compared to the same quarter in
2007. While the Company’s net interest income increased slightly, the
net interest margin declined reflecting the recent declines in short-term
rates. The Company’s net interest margin declined to 3.87% at the end
of the third quarter compared to 4.03% in the same period of 2007.
Total
interest income during the third quarter of 2008 was $32.1 million compared to
$37.5 million in the same quarter of 2007. Yields on earning assets
also fell, declining from 7.87% in the third quarter of 2007 to 6.38% in the
third quarter of 2008. Yields on loans led overall yields lower,
declining to 6.67% in the third quarter compared to 8.48% in the same period in
2007. Declines in loan yields were the result of decreases in the
prime rate beginning in November 2007. At the end of the third
quarter, yields on the Company’s variable loan portfolio had decreased to 6.00%,
compared to 8.40% for the same quarter of 2007. When compared to the
third quarter of 2007, yields on fixed rate loans in the third quarter of 2008
declined to 7.54% from 8.16%. Fixed rate loans account for approximately
43.74% of the total portfolio.
Interest
expense declined significantly, offsetting declines in interest
income. Total interest expense in the third quarter of 2008 amounted
to $12.9 million, reflecting a decline of 29.59% from the same quarter in
2007. The Company’s cost of funding declined to 2.54% in the current
quarter from 3.90% reported during the third quarter of 2007. Yields
on the Company’s CD portfolio declined to 3.79% in the third quarter of 2008
compared to 5.08% in the same quarter of 2007. Costs of non-deposit
funding declined significantly in the third quarter of 2008 to 2.09% compared to
5.78% in the third quarter of 2007. Declines in the costs of
non-deposit borrowings relate mostly to favorable structures in the
Company’s borrowings from the FHLB.
Provision
for Loan Losses and Credit Quality
The
Company’s provision for loan losses during the third quarter of 2008 amounted to
$8.2 million compared to $3.0 million for the same quarter of
2007. The increase in the provision was related to continued credit
quality declines in several of the Bank’s
markets. Non-performing assets as a percentage of loans and OREO
increased to 2.52% at September 30, 2008 compared to 1.38% at September 30,
2007. A severe slowdown in real estate activity (sales and
valuations) centered primarily in our north Florida markets has exposed weaker
borrowers and stressed the financial condition of stronger
borrowers. Strengthening the underlying controls and risk management
systems around credit quality has been a priority for the past several quarters
and continues today. These efforts compound the efforts already
underway to remove weaker borrowers from the balance sheet and to aggressively
work non-performing assets. The Company believes that these efforts
will ultimately result in an improving trend in credit quality but understands
that a stronger real estate market is required.
Net
charge-offs in the third quarter of 2008 amounted to $6.7 million, or annualized
1.58% of total loans, compared to $1.5 million, or 0.39%, in the third quarter
of 2007. Net charge-offs in the third quarter of 2008 were more
geographically widespread than in previous quarters, but were still centered in
our north Florida markets.
Noninterest
Income
Noninterest
income in the third quarter of 2008 increased slightly to $4.64 million from
$4.59 million in the same quarter of 2007. Service charges on deposit
accounts increased approximately $460,000 to $3.7 million in the current
quarter. These increases were primarily the result of higher fee and
service charge structures implemented during the fourth quarter of 2007.
During the quarter, income from mortgage banking activities decreased 4.9% or
$38,000 to end the third quarter at $745,000. The decrease in
mortgage income was related to market turmoil which some of the Bank’s markets
continue to experience.
Noninterest
Expense
Noninterest
expenses in the third quarter of 2008 decreased to $14.8 million compared to
$15.2 million in the same quarter of 2007. Salaries and benefits
decreased 4.37% or $7.1 million during the third quarter when compared to the
same period a year ago. This change was due mostly to lower levels of
incentive accrual. During the third quarter of 2008 the Company did
not accrue an expense for incentive pay compared to an incentive accrual expense
of approximately $277,000 in the third quarter of 2007. The Company’s
continued expansion in South Carolina and Jacksonville, Florida contributed
to a larger than normal 7.7% increase in premises and equipment expense to end
the quarter at $1.9 million. Other operating expenses decreased
approximately $327,000 to $4.2 million in the third quarter of 2008 when
compared to the third quarter of 2007. The majority of the decrease was a
result of a decrease in legal expenses.
Income
taxes
Income
taxes in the third quarter amounted to $469,000, an effective rate of 56.2%,
compared to $1.9 million and 35.5%, respectively, in the same quarter of
2007. During the third quarter, the company settled certain issues with
the Internal Revenue Service resulting in approximately $261,000 in additional
tax and an abnormally high effective rate.
Results
of Operations for the Nine Months Ended September 30, 2008 and 2007
Interest
Income
Interest
income for the nine months ended September 30, 2008 was $98.5 million, a decline
of 10.4%, compared to $108.7 million for the same period in
2007. Average earning assets for the nine month period increased
5.9%, to $1.97 billion as of September 30, 2008 compared to $1.86
billion as of September 30, 2007. Yield on average earning assets
declined to 6.73% from 7.84% for the nine months ended September 30, 2008 and
2007, respectively.
Interest
Expense
Total
interest expense for the nine months ended September 30, 2008 amounted to $41.8
million, reflecting a decline of 21.0% from the same period of
2007. During the nine month period ended September 30, 2008, the
Company’s cost of funding declined to 2.86% from 3.85% reported in the previous
year. In the same period, yields on the Company’s CD portfolio fell
to 4.27% compared to 5.06% for the nine months period ended September 30,
2008. The Company’s non-deposit funding declined significantly to
2.86% from 3.85% in the first nine months of 2007.
Decreases
in both interest income and interest expense result from a lower rate
environment in the current period than was experienced during the same period in
2007.
Net
Interest Income
On a tax
equivalent basis, net interest income for the nine months ended September 30,
2008 increased 2.65% to $58.0 million compared to $56.5 million for the
same period ending September 30, 2007. The majority of the increase
is the result of an increase in earning assets. Earning assets
increased $156.3 million or 8.15% during the nine month period, which helped
offset the impact of a decreasing net interest margin. The Company’s net
interest margin decreased to 3.92% for the nine months ended September 30, 2008
compared to 4.05% as of September 30, 2007.
Provision
for Loan Losses
The
provision for loan losses increased notably to $15.1 million for the nine months
ended September 30, 2007 compared to $4.4 million in the same period in
2007. Total non-performing assets increased to $43.1 million at
September 30, 2008 from $21.9 million at September 30, 2007. For the
nine month period ending September 30, 2008, Ameris had net charge-offs of $12.6
million compared to $2.8 million for the same period in 2007. As a percent
of loans, annualized net charge offs were 0.99% and 0.24% for the nine months
ending September 30, 2008 and 2007, respectively.
Noninterest
Income
Noninterest
income for the first nine months of 2008 grew $1.0 million, or 7.52%, to
$14.8 million, compared to the prior year period. Service charges on
deposit accounts increased 16.48%, or $1.5 million, to end the nine month period
at $10.6 million. Mortgage banking activities include origination fees,
service release premiums and gain on the sales of mortgage loans
held-for-sale. Mortgage banking activities for the nine months ended September
30, 2008 totaled $2.5 million, an increase of $200,000, or 8.70%, compared to
mortgage banking activities of $2.3 million in the nine months ended September
30, 2007.
Noninterest
Expense
Non-interest
expense for the first nine months of 2008 was $46.4 million. This
represents a $3.0 million increase over the prior year period which totaled
$43.4 million. Salaries and employee benefits of $24.4 million for the
nine months ended September 30, 2008 were $1.8 million higher than the $22.6
million reported for the same period in 2007. The majority of the increase
is attributable to new hires across the Company’s newer markets. Occupancy and
equipment expense increased approximately $800,000 to $6.0 million for the
nine months ended September 30, 2008 compared to the same period of 2007 as a
result of new branch offices, primarily in South Carolina and Jacksonville,
Florida. Marketing and advertising expense increased during the first
nine months of 2008 to $2.0 million, an increase of approximately $707,000 when
compared to the same period in 2007. This increase relates to
aggressive marketing campaigns in new and existing markets
and is partially the cause of increases in mortgage and service
charge revenues. At the end of the first nine months of 2008,
collection expense related to problem loans increased approximately 18.32% to
$840,983 from $710,726 for the same period ended September 30,
2007.
Income
Taxes
For the
nine months ended September 30, 2008 and 2007, the provision for taxes was $3.5
million and $7.8 million, respectively. The effective tax rate for the nine
months ended September 30, 2008 was 35.1% compared to 35.9% for the same period
in 2007. The amount of income tax expense is influenced by the amount of
taxable income and the amount of tax-exempt income. Decreases in the
tax expense directly correspond to the decrease in taxable income reported at
the end of the first nine months of 2008 compared to the first nine months of
2007.
Short-Term
Investments
The
Company’s short-term investments are comprised of federal funds sold and
interest bearing balances. At September 30, 2008, the Company’s
short-term investments were $75.4 million, compared to $12.0 million and $22.9
million at December 31, 2007 and September 30, 2007,
respectively. These balances have historically been distributed
between deposits held by the Federal Home Loan Bank, and federal funds
sold.
Capital
Capital
management consists of providing equity to support both current and anticipated
future operations. The Company is subject to capital adequacy
requirements imposed by the Federal Reserve Board (the “FRB”) and the Georgia
Department of Banking and Finance (the “GDBF”), and the Bank is subject to
capital adequacy requirements imposed by the Federal Deposit Insurance
Corporation (the “FDIC”) and the GDBF.
The FRB,
the FDIC and the GDBF have adopted risk-based capital requirements for
assessing bank holding company and bank capital adequacy. These
standards define and establish minimum capital requirements in relation to
assets and off-balance sheet exposure, adjusted for credit risk. The
risk-based capital standards currently in effect are designed to make regulatory
capital requirements more sensitive to differences in risk profiles among bank
holding companies and banks and to account for off-balance sheet
exposure.
The
minimum requirements established by the regulators for the Bank are set forth in
the table below along with the actual ratios at September 30, 2008 and
2007.
|
Well
Capitalized Requirement
|
Adequately
Capitalized Requirement
|
September 30,
2008 Actual
|
September
30, 2007 Actual
|
|||||||
|
Tier
1 Capital (to Average Assets)
|
≥5%
|
≥4%
|
8.30
|
%
|
8.53
|
%
|
||||
|
Tier
1 Capital (to Risk Weighted Assets)
|
≥6%
|
≥4%
|
10.08
|
%
|
10.80
|
%
|
||||
|
Total
Capital (to Risk Weighted Assets)
|
≥10%
|
≥8%
|
11.33
|
%
|
12.05
|
%
|
||||
Loans
and Allowance for Loan Losses
At
September 30, 2008, gross loans outstanding were $1.71 billion, an increase of
$117.1 million, or 7.4%, over balances at September 30, 2007. The growth in the
loan portfolio was attributable to a consistent focus on quality loan production
and expansion into faster growing markets over the past few
years. The Company regularly monitors the composition of the
loan portfolio to evaluate the adequacy of the allowance for loan losses in
light of the impact that changes in the economic environment may have on the
loan portfolio.
The
Company focuses on the following loan categories: (1) commercial, financial
& agricultural, (2) residential real estate, (3) commercial and farmland
real estate, (4) construction and development related real estate, and (5)
consumer. The Company’s management has strategically located its
branches in south and southeast Georgia, north Florida, southeast Alabama
and the state of South Carolina and has taken advantage of the growth in
these areas.
The
allowance for loan losses is a reserve established through charges to earnings
in the form of a provision for loan losses. The provision for loan
losses is based on management’s evaluation of the size and composition of the
loan portfolio, the level of non-performing and past due loans, historical
trends of charged-off loans and recoveries, prevailing economic conditions and
other factors management deems appropriate. The Company’s management
has established an allowance for loan losses which it believes is adequate for
the risk of loss inherent in the loan portfolio. Based on a credit
evaluation of the loan portfolio, management presents a monthly review of the
allowance for loan losses to the Company’s Board of Directors. The
review that management has developed primarily focuses on risk by evaluating
individual loans in certain risk categories. These categories have
also been established by management and take the form of loan
grades. By grading the loan portfolio in this manner the
Company’s management is able to effectively evaluate the portfolio by risk,
which management believes is the most effective way to analyze the loan
portfolio and thus analyze the adequacy of the allowance for loan
losses. The Company’s reserve for loan losses is completely allocated
to individual loans through this grading system.
The
Company’s risk management processes include a loan review program designed to
evaluate the credit risk in the loan portfolio and insure credit grade
accuracy. Through the loan review process, the Company maintains a
loan portfolio summary analysis, charge-off and recoveries analysis, trends in
accruing problem loan analysis, and problem and past due loan analysis which
serve as tools to assist management in assessing the overall quality of the loan
portfolio and the adequacy of the allowance for loan losses. Loans
classified as “substandard” are loans which are inadequately protected by the
current sound worth and paying capacity of the borrower or of the collateral
pledged. These assets exhibit a well-defined weakness or are
characterized by the distinct possibility that the Company will sustain some
loss if the deficiencies are not corrected. These weaknesses may be
characterized by past due performance, operating losses and/or questionable
collateral values. Loans classified as “doubtful” are those loans
that have characteristics similar to substandard loans but have an increased
risk of loss. Loans classified as “loss” are those loans which are
considered uncollectible and are in the process of being
charged-off.
The
allowance for loan losses is established by examining (1) the large classified
loans, nonaccrual loans and loans considered impaired and evaluating them
individually to determine the specific reserve allocation, and (2) the remainder
of the loan portfolio to allocate a portion of the allowance based on past loss
experience and the economic conditions for the particular loan
category. The Company will also consider other factors such as
changes in lending policies and procedures; changes in national, regional,
and/or local economic and business conditions; changes in the nature and volume
of the loan portfolio; changes in the experience, ability and depth of either
the bank president or lending staff; changes in the volume and severity of past
due and classified loans; changes in the quality of the Company’s corporate loan
review system; and other factors management deems
appropriate. Historically, we believe our estimates of the level of