NOTE 8 – SUBSEQUENT EVENT

Subsequent to June 30, 2012, the Company participated in a FDIC-assisted acquisition that is not expected to have a material impact on the Company’s operations and statement of condition. The acquisition is described as follows:

Montgomery Bank & Trust, Ailey, Georgia:

On July 6, 2012, the Bank purchased certain assets and assumed substantially all the deposits of Montgomery Bank & Trust (“MBT”) from the FDIC, as Receiver of MBT. MBT operated two branches in Ailey and Vidalia, Georgia. The Bank assumed approximately $156.6 million in customer deposits and acquired approximately $18.1 million in assets, including approximately $16.7 million in cash and cash equivalents and approximately $1.2 million in deposit-secured loans. The assets were acquired without a discount and the deposits were assumed with no premium. To settle the transaction, the FDIC made a cash payment to the Bank totaling approximately $138.7 million, based on the differential between liabilities assumed and assets acquired.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Note Regarding Any Forward-Looking Statements

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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation, 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.

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, 2012 as compared to December 31, 2011 and operating results for the three-and six-month periods ended June 30, 2012 and 2011. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

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


(in thousands, except share data, taxable equivalent)	Second Quarter 2012			First Quarter 2012			Fourth Quarter 2011			Third Quarter 2011			Second Quarter 2011			For Six Months Ended
(in thousands, except share data, taxable equivalent)	Second Quarter 2012			First Quarter 2012			Fourth Quarter 2011			Third Quarter 2011			Second Quarter 2011			June 30, 2012			June 30, 2011
Results of Operations:
Net interest income	$	28,881		$	27,727		$	32,768		$	27,802		$	28,747		$	56,608		$	52,954
Net interest income (tax equivalent)		29,058			27,655			33,022			28,026			28,969			56,713			53,387
Provision for loan losses		7,225			12,882			9,019			7,552			9,115			20,107			16,158
Non-interest income		8,875			27,264			6,689			33,945			5,974			36,139			12,167
Non-interest expense		26,623			34,246			28,710			29,486			22,596			60,869			43,751
Income tax expense		1,413			2,498			587			8,249			896			3,911			1,720
Preferred stock dividends		817			815			819			817			807			1,632			1,605
Net income available to common shareholders		1,678			4,550			322			15,643			1,307			6,228			1,887
Selected Average Balances:
Loans, net of unearned income	$	1,378,448		$	1,329,146		$	1,335,242		$	1,437,609		$	1,349,092		$	1,356,338		$	1,357,664
Covered loans		601,802			602,353			600,367			540,959			506,251			601,507			522,497
Investment securities		370,928			356,112			338,076			327,195			289,149			364,189			295,344
Earning assets		2,505,744			2,482,070			2,516,100			2,503,121			2,426,041			2,502,571			2,440,683
Assets		2,966,527			2,978,469			2,978,469			3,048,337			2,909,012			2,972,498			2,945,426
Deposits		2,591,607			2,589,978			2,623,403			2,639,848			2,540,738			2,547,066			2,547,066
Common shareholders’ equity		243,463			242,817			248,729			228,716			229,794			243,140			228,645
Period-End Balances:
Loans, net of unearned income	$	1,365,489		$	1,323,844		$	1,332,086		$	1,368,895		$	1,360,063		$	1,365,489		$	1,360,063
Covered loans		601,737			653,377			571,489			595,428			486,489			601,737			486,489
Earning assets		2,465,116			2,558,047			2,484,147			2,475,511			2,399,258			2,465,116			2,399,258
Total assets		2,920,311			3,043,234			2,994,307			3,010,379			2,857,237			2,920,311			2,857,237
Total deposits		2,544,672			2,665,360			2,591,566			2,628,892			2,511,363			2,544,672			2,511,363
Common shareholders’ equity		249,895			246,813			243,043			243,850			226,739			249,895			226,739
Per Common Share Data:
Earnings per share - Basic	$	0.07		$	0.19		$	0.01		$	0.67		$	0.06		$	0.26		$	0.08
Earnings per share - Diluted		0.07			0.19			0.01			0.06			0.06			0.26			0.08
Common book value per share		10.49			10.36			10.23			10.27			9.54			10.49			9.54
End of period shares outstanding		23,819,144			23,814,144			23,751,294			23,742,794			23,766,044			23,819,144			23,766,044
Weighted average shares outstanding
Basic		23,818,814			23,762,196			23,457,739			23,438,335			23,449,123			23,790,505			23,522,361
Diluted		23,973,039			23,916,421			23,611,964			23,559,063			23,508,419			23,944,730			23,566,476
Market Price:
High closing price		13.40			13.32			10.66			10.30			10.16			13.40			11.10
Low closing price		10.88			10.34			8.55			8.47			8.49			10.34			8.49
Closing price for quarter		12.60			13.14			10.28			8.71			8.87			12.60			8.87
Average daily trading volume		58,370			59,139			68,654			71,955			58,706			58,751			52,545
Cash dividends per share		—			—			—			—			—			—			—
Stock dividend		—			—			—			—			—			—			—
Closing price to book value		1.20			1.27			1.00			0.85			0.93			1.20			0.93
Performance Ratios:
Return on average assets		0.34	%		0.72	%		0.15	%		2.14	%		0.18	%		0.53	%		0.13	%
Return on average common equity		4.12	%		8.89	%		1.82	%		28.55	%		2.28	%		6.49	%		1.66	%
Average loans to average deposits		76.41	%		74.58	%		73.78	%		74.95	%		73.02	%		76.87	%		73.82	%
Average equity to average assets		9.93	%		9.86	%		9.91	%		9.16	%		9.63	%		9.90	%		9.47	%
Net interest margin (tax equivalent)		4.66	%		4.48	%		5.21	%		4.44	%		4.79	%		4.56	%		4.41	%
Efficiency ratio (tax equivalent)		70.51	%		62.28	%		72.76	%		47.75	%		65.08	%		65.63	%		66.85	%

Results of Operations for the Three Months Ended June 30, 2012

Consolidated Earnings and Profitability

Ameris reported net income available to common shareholders of $1.7 million, or $0.07 per diluted share, for the quarter ended June 30, 2012, compared to $1.3 million, or $0.06 per diluted share for the same period in 2011. The Company’s return on average assets and average shareholders’ equity increased in the second quarter of 2012 to 0.34% and 4.12%, respectively, compared to 0.18% and 2.28% in the second quarter of 2011. The increase in earnings and profitability during the quarter was primarily due to increased net interest income and reduced credit costs.

Net Interest Income and Margins

On a tax equivalent basis, net interest income for the second quarter of 2012 was $29.1 million, a slight increase compared to $29.0 million reported in the same quarter in 2011. Significant increases in the Company’s net interest margin have been the result of flat yields on all classes of earning assets complemented by steady decreases in the Company’s cost of funds. The Company’s net interest margin increased during the first quarter of 2012 to 4.66%, compared to 4.48% during the first quarter of 2012 and 4.79% during the second quarter of 2011. The decreased net interest margin in the second quarter of 2012 is due to $3.8 million of non-recurring accretion on covered loans from improvements in the expected cash flows from FDIC-assisted acquisitions recognized in the second quarter of 2011. Increases in earning assets over the past year have been in covered loans with favorable yields compared to the Company’s low cost of funds.

Total interest income during the second quarter of 2012 was $33.2 million, compared to $36.1 million in the same quarter of 2011. Yields on earning assets fell to 5.33%, compared to 5.98% reported in the second quarter of 2011. During the second quarter of 2012, short-term assets averaged 5.8% of total earning assets, compared to 11.2% in the same quarter in 2011. Current opportunities to invest a portion of the short-term assets in the bond market have been limited by the Company’s inability to maintain certain portfolio characteristics with current yields and structures being offered. Efforts to increase lending activities have been slow to generate increases in outstanding loans due to the current economic conditions in the Company’s markets. Management anticipates improving economic conditions and increased loan demand will provide opportunities to invest a portion of the short-term assets at higher yields.

Total funding costs declined to 0.62% in the second quarter of 2012, compared to 1.10% during the second quarter of 2011. Deposit costs decreased from 1.08% in the second quarter of 2011 and 0.63% in the first quarter of 2012 to 0.56% in the second quarter of 2012. Ongoing efforts to maintain the percentage of funding from transaction deposits have succeeded such that non-CD deposits averaged 67.6% of total deposits in the second quarter of 2012 compared to 60.1% during the second quarter of 2011. Lower costs on deposits were due mostly to the lower rate environment and the Company’s ability to be less competitive on higher priced CDs due to its larger than normal position in short-term assets. Further opportunity to realize savings on deposits exists but may be limited due to current costs. Average balances of interest bearing deposits and their respective costs for the second quarter of 2012 and 2011 are shown below:


(Dollars in Thousands)	June 30, 2012					June 30, 2011
	Average Balance		Average Cost			Average Balance		Average Cost
NOW	$	605,494		0.30	%	$	582,773		0.71	%
MMDA		616,449		0.53	%		545,261		1.06	%
Savings		97,097		0.15	%		78,674		0.45	%
Retail CDs < $100,000		369,651		0.91	%		417,297		1.43	%
Retail CDs > $100,000		410,855		1.05	%		490,660		1.61	%
Brokered CDs		59,526		2.96	%		105,338		3.33	%

Interest bearing deposits	$	2,159,072		0.68	%	$	2,220,003		1.25	%

Provision for Loan Losses and Credit Quality

The Company’s provision for loan losses during the second quarter of 2012 amounted to $7.2 million, compared to $12.9 million in the first quarter of 2012 and $9.1 million in the second quarter of 2011. Although the Company has experienced improving trends in criticized and classified assets for several quarters, provision for loan losses continues to be required to account for continued devaluation of real estate collateral. At June 30, 2012, classified loans still accruing totaled $37.3 million, compared to $40.0 million at June 30, 2011. Non-accrual loans at June 30, 2012 totaled $44.4 million, a 15.0% decrease from the $52.3 million reported at March 31, 2012 and a 26.6% decrease from the $60.5 million reported at June 30, 2011.

At June 30, 2012, other real estate owned (excluding covered OREO) totaled $40.0 million, compared to $40.0 million at March 31, 2012 and $61.5 million at June 30, 2011. Management regularly assesses the valuation of OREO through periodic reappraisal and through inquiries received in the marketing process. The Company has found that with a marketing window of 3-6 months, the liquidation of properties occurs between 85% and 100% of current book value. Certain properties, mostly raw land and subdivision lots, have extended marketing periods because of excessive inventory and record low home building activity. At the end of the second quarter of 2012, total non-performing assets decreased to 2.89% of total assets, compared to 4.27% at June 30, 2011. Management continues to aggressively identify and resolve problem assets while seeking quality credits to grow the loan portfolio.

Net charge-offs on loans during the second quarter of 2012 were $8.6 million, or 2.5% of loans on an annualized basis, compared to $8.4 million, or 2.5% of loans, in the second quarter of 2011. The Company’s allowance for loan losses at June 30, 2012 was $26.2 million, or 1.92% of total loans, compared to $34.5 million, or 2.54% of total loans, at June 30, 2011.

Non-interest Income

Total non-interest income for the second quarter of 2012 was $8.9 million, compared to $6.0 million in the second quarter of 2011. Income from mortgage related activities continued to increase as a result of the Company’s increased number of mortgage bankers and higher level of productions. During the second quarter of 2012, the Company elected to record newly originated mortgage loans held-for-sale at fair value, which increased mortgage income by approximately $616,000. Service charges on deposit accounts in the second quarter of 2012 increased slightly to $4.8 million, compared to $4.4 million in the first quarter of 2012 and $4.7 million in the second quarter of 2012.

Non-interest Expense

Total non-interest expenses for the second quarter of 2012 increased to $26.6 million, compared to $22.6 million in the same quarter in 2011. Salaries and benefits increased $2.7 million when compared to the second quarter of 2011, due to the reinstatement of certain compensation elements (including incentive accruals and board fees). Occupancy and equipment expense increased during the quarter from $2.8 million in the second quarter of 2011 to $2.9 million in the second quarter of 2012. Data processing and telecommunications expenses increased slightly to $2.9 million for the second quarter of 2012 from $2.8 million for the same period in 2011. Both of these increases over the same period in 2011 relate to eight additional branches acquired in FDIC-assisted transactions over the past year. Credit related expenses, including problem loan and OREO expense and OREO write-downs and losses, decreased to $3.4 million in the second quarter of 2012, compared to $3.9 million in the second quarter of 2011.

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 2012, the Company reported income tax expense of $1.4 million, compared to $896,000 in the same period of 2011. The Company’s effective tax rate for the three months ending June 30, 2012 and 2011 was 36.2% and 29.8%, respectively.

Results of Operations for the Six Months Ended June 30, 2012

Interest Income

Interest income for the six months ended June 30, 2012 was $65.4 million on a tax equivalent basis, a decrease of $3.1 million when compared to $68.5 million for the same period in 2011. Average earning assets for the six-month period increased $61.9 million to $2.50 billion as of June 30, 2012, compared to $2.44 billion as of June 30, 2011. Yield on average earning assets was 5.25% compared to 5.66% in the first six months of 2011. The decreased yield in 2012 was due to $3.8 million of non-recurring accretion on covered loans during the second quarter of 2011 from improvements in the expected cash flows from FDIC-assisted acquisitions. Earning assets acquired in connection with the Company’s FDIC-assisted acquisitions have allowed the Company to maintain rather level amounts of earning assets while interest rate floors on individual customer loans have allowed the Company to keep the yield on loans from falling precipitously in the current rate environment. 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, 2012 amounted to $8.7 million, reflecting a $6.4 million decrease from the $15.1 million expense recorded in the same period of 2011. During the six-month period ended June 30, 2012, the Company’s funding costs declined to 0.66% from 1.16% reported in the previous period. The majority of the decline in interest expense and costs relates to improvements in the cost of the Company’s retail time deposits, which fell to 1.16% in the six-month period ending June 30, 2012, compared to 1.60% in the same period in 2011.

Net Interest Income

Higher levels of earning assets with generally level yields have combined with reduced funding costs to result in material improvements in net interest income. For the year-to-date period ending June 30, 2012, the Company reported $56.7 million of net interest income on a tax equivalent basis, compared to $53.4 million of net interest income for the same period in 2011. The Company’s net interest margin increased to 4.56% in the six month period ending June 30, 2012, compared to 4.41% in the same period in 2011.

Provision for Loan Losses

The provision for loan losses increased to $20.1 million for the six months ended June 30, 2012, compared to $16.2 million in the same period in 2011, due to charges related to the bulk sale in the first quarter of 2012. Non-performing assets totaled $84.4 million at June 30, 2012, compared to $122.1 million at June 30, 2011. For the six-month period ended June 30, 2012, the Company had net charge-offs totaling $27.6 million, compared to $14.6 million for the same period in 2011. Annualized net charge-offs as a percentage of loans increased to 4.07% during the first six months of 2012, compared to 2.17% during the first six months of 2011. This increase was due to the Company’s bulk sale of certain non-performing assets during the first quarter of 2012.

Non-interest Income

Non-interest income for the first six months of 2012 was $36.1 million, compared to $12.2 million in the same period in 2011. Excluding non-recurring gains on investment securities and an FDIC-assisted acquisition, the Company’s non-interest income totaled $16.1 million, an increase of $4.2 million, or 35.0% compared to the same period in 2011. Service charges on deposit accounts increased approximately $224,000 to $9.2 million in the first six months of 2012 compared to the same period in 2011. Income from mortgage banking activity increased from $826,000 in the first six months of 2011 to $4.5 million in the first half of 2012, due to increased number of mortgage bankers and higher level of productions.

Non-interest Expense

Total operating expenses for the first six months of 2012 increased to $60.9 million, compared to $43.8 million in the same period in 2011. Salaries and benefits increased $4.3 million when compared to the first half of 2011, due to the increased number of branch locations over this time period and the reinstatement of certain compensation elements during 2012. Occupancy and equipment expenses for the first six months of 2012 amounted to $6.2 million, representing an increase of $733,000 from the same period in 2011. Data processing and telecommunications expenses decreased slightly during the first six months of 2012. Credit related expenses, including problem loan and OREO expense and OREO write-downs and losses, increased to $16.2 million in the first six months of 2012, compared to $5.7 million in the first half of 2011, due to the Company’s bulk sale of certain nonperforming assets in the first quarter of 2012. During the first quarter of 2012, the Company successfully sold $31.2 million of non-performing and classified assets through several individual transactions. Through these sales, the Company sold $16.1 million in non-performing loans, $13.3 million in other real estate owned and $1.8 million in classified accruing loans. Losses associated with the sales totaled $16.1 million.

Income Taxes

In the first six months of 2012, the Company recorded income tax expense of $3.9 million, compared to $1.7 million in the same period of 2011. The Company’s effective tax rate for the six months ended June 30, 2012 and 2011 was 33.2% and 33.0%, respectively.

Financial Condition as of June 30, 2012

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 investments and are recorded at cost.

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 does not intend to sell these investment securities at an unrealized loss position at June 30, 2012, and it is more likely than not that the Company will not be required to sell these securities prior to recovery or maturity. Therefore, at June 30, 2012, these investments are not considered impaired on an other-than temporary basis.

The following table illustrates certain information regarding the Company’s investment portfolio with respect to yields, sensitivities and expected cash flows over the next twelve months assuming constant prepayments and maturities:


	Book Value		Fair Value		Yield			Modified Duration		Estimated Cash Flows 12 months
	Dollars in Thousands
June 30, 2012:
U.S. government agencies	$	8,602	$	8,898		1.55	%		2.16	$	—
State and municipal securities		95,354		100,327		2.79	%		5.87		9,369
Corporate debt securities		11,792		11,506		6.95	%		6.95		1,250
Mortgage-backed securities		239,412		246,249		1.47	%		2.60		75,700

Total debt securities	$	355,160	$	366,980		2.00	%		3.62	$	86,319

June 30, 2011:
U.S. government agencies	$	24,056	$	24,259		1.30	%		1.44	$	18,300
State and municipal securities		58,636		60,546		3.70	%		5.59		4,722
Corporate debt securities		11,637		9,722		6.66	%		5.98		100
Mortgage-backed securities		234,437		239,849		3.56	%		3.13		62,159

Total debt securities	$	328,766	$	334,376		3.54	%		3.57	$	85,281

Loans and Allowance for Loan Losses

At June 30, 2012, gross loans outstanding (including covered loans) were $1.97 billion, an increase from $1.85 billion reported at June 30, 2011. Covered loans increased $115.2 million, from $486.5 million at June 30, 2011 to $601.7 million at June 30, 2012. This increase in covered loans is due to the FDIC-assisted transactions completed during the first quarter of 2012 and the third quarter of 2011. The Company’s participation in FDIC-assisted acquisitions was integral to being able to maintain a certain level of loans because management does not feel that enough loan opportunities with acceptable quality and profitability exist in our current market areas to stabilize and increase. Non-covered loans increased $41.6 million to $1.37 billion during the second quarter of 2012, compared to $1.32 billion at March 31, 2012 and $1.36 billion at June 30, 2011.

The slower decline in loans reflects increased economic activity compared to 2009 and 2010, offset by management’s focus on reducing higher risk loans within the Bank’s loan portfolio. 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 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 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, 2012, the Company recorded net charge-offs totaling $27.6 million, compared to $14.6 million for the period ended June 30, 2011. The provision for loan losses for the six months ended June 30, 2012 increased to $20.1 million, compared to $16.2 million during the six-month period ended June 30, 2011. Increased levels of charge-offs and provision expense relates almost entirely to the Company’s bulk sale of non-performing loans during the first quarter of 2012. At the end of the second quarter of 2012, the allowance for loan losses totaled $26.2 million, or 1.92% of total legacy loans, compared to $35.2 million, or 2.64% of total legacy loans, at December 31, 2011 and $34.5 million, or 2.54% of total legacy loans, at June 30, 2011.

The following table presents an analysis of the allowance for loan losses for the six months ended June 30, 2012 and 2011:


(Dollars in Thousands)	June 30, 2012			June 30, 2011
Balance of allowance for loan losses at beginning of period	$	35,156		$	34,576
Provision charged to operating expense		18,670			14,554
Charge-offs:
Commercial, financial and agricultural		654			3,241
Real estate – residential		4,374			1,944
Real estate – commercial and farmland		17,484			4,889
Real estate – construction and development		5,211			5,247
Consumer installment		352			305
Other		—			—

Total charge-offs		28,075			15,626

Recoveries:
Commercial, financial and agricultural		78			68
Real estate – residential		162			59
Real estate – commercial and farmland		24			6
Real estate – construction and development		19			829
Consumer installment		164			57
Other		—			—

Total recoveries		447			1,019

Net charge-offs		27,628			14,607

Balance of allowance for loan losses at end of period	$	26,198		$	34,523

Net annualized charge-offs as a percentage of average loans		4.07	%		2.17	%
Allowance for loan losses as a percentage of loans at end of period		1.92	%		2.54	%

Assets Covered by Loss-Sharing Agreements with the FDIC

Loans that were acquired in FDIC-assisted transactions that are covered by the loss-sharing agreements with the FDIC (“covered loans”) totaled $601.7 million, $571.5 million and $486.5 million at June 30, 2012, December 31, 2011 and June 30, 2011, respectively. OREO that is covered by the loss-sharing agreements with the FDIC totaled $83.5 million, $78.6 million and $63.6 million at June 30, 2012, December 31, 2011 and June 30, 2011, respectively. The loss-sharing agreements are subject to the servicing procedures as specified in the agreements with the FDIC. The expected reimbursements under the loss-sharing agreements were recorded as an indemnification asset at their estimated fair value on the acquisition dates. The FDIC loss-share receivable reported at June 30, 2012, December 31, 2011 and June 30, 2011 was $203.8 million, $242.4 million and $160.9 million, respectively.

The Bank recorded the loans at their fair values, taking into consideration certain credit quality, risk and liquidity marks. The Company is confident in its estimation of credit risk and its adjustments to the carrying balances of the acquired loans. If the Company determines that a loan or group of loans has deteriorated from its initial assessment of fair value, a reserve for loan losses will be established to account for that difference. During the six months ended June 30, 2012, the year ended December 31, 2011 and the six months ended June 30, 2011, the Company recorded provision for loan loss expense of $1.4 million, $2.4 million and $1.6 million, respectively, to account for losses where the initial estimate of cash flows was found to be excessive on loans acquired in FDIC-assisted transactions. If the Company determines that a loan or group of loans has improved from its initial assessment of fair value, the increase in cash flows over those expected at the acquisition date is recognized as interest income prospectively.

Covered loans are shown below according to loan type as of the end of the periods shown:


(Dollars in Thousands)	June 30, 2012		December 31, 2011		June 30, 2011
Commercial, financial and agricultural	$	41,372	$	41,867	$	42,494
Real estate – construction and development		83,991		77,077		79,540
Real estate – commercial and farmland		322,393		321,257		229,924
Real estate – residential		150,683		127,644		129,721
Consumer installment		3,298		3,644		4,810

	$	601,737	$	571,489	$	486,489

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 owned. 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.

As of June 30, 2012, nonaccrual or impaired loans totaled $44.4 million, a decrease of approximately $26.4 million since December 31, 2011. The decrease in nonaccrual loans is due to the bulk sale of non-performing assets during the first quarter of 2012, the success in the foreclosure and resolution process, and a significant slowdown in the formation of new problem credits. Non-performing assets as a percentage of total assets were 2.89%, 4.05% and 4.27% at June 30, 2012, December 31, 2011 and June 30, 2011, respectively.

Non-performing assets at June 30, 2012, December 31, 2011 and June 30, 2011 were as follows:


(Dollars in Thousands)	June 30, 2012		December 31, 2011		June 30, 2011
Total nonaccrual loans	$	44,421	$	70,823	$	60,545
Other real estate owned and repossessed collateral		40,018		50,301		61,533
Accruing loans delinquent 90 days or more		1		—		—

Total non-performing assets	$	84,440	$	121,124	$	122,078

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the Company has granted a concession. The following table presents the amount of accruing troubled debt restructurings by loan class at June 30, 2012 and December 31, 2011.


	June 30,2012				December 31, 2011
Loan class:	#		Balance (in thousands)		#		Balance (in thousands)
Real estate – construction & development		5	$	1,205		6	$	1,774
Real estate – commercial & farmland		16		13,293		14		9,622
Real estate – residential		24		8,472		19		6,555

Total		45	$	22,970		39	$	17,951

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, 2012, 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, 2012 and December 31, 2011. The loan categories and concentrations below are based on Federal Reserve Call codes and include “covered” loans.


(Dollars in Thousands)	June 30, 2012					December 31, 2011
	Balance		% of Total Loans			Balance		% of Total Loans
Construction and development loans	$	208,547		10	%	$	207,347		11	%
Multi-family loans		55,376		3	%		60,247		3	%
Nonfarm non-residential loans		806,230		41	%		806,176		42	%

Total CRE Loans	$	1,070,153		54	%	$	1,073,770		56	%
All other loan types		897,073		46	%		829,805		44	%

Total Loans	$	1,967,226		100	%	$	1,903,575		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, 2012 and December 31, 2011:


	Internal Limit			June 30, 2012			December 31, 2011
	Internal Limit			Actual			Actual
Construction and development		100	%		69	%		71	%
Commercial real estate		300	%		228	%		228	%

Short-Term Investments

The Company’s short-term investments are comprised of federal funds sold and interest bearing balances. At June 30, 2012, the Company’s short-term investments were $111.3 million, compared to $229.0 million and $218.3 million at December 31, 2011 and June 30, 2011, respectively. At June 30, 2012, approximately 99.9% of the balance was comprised of interest bearing balances.

Derivative Instruments and Hedging Activities

The Company had cash flow hedges with notional amounts totaling $35.0 million at June 30, 2011 for the purpose of converting floating rate loans to fixed rate. The Company had a cash flow hedge with notional amount of $37.1 million at June 30, 2012, December 31, 2011 and June 30, 2011, for the purpose of converting the variable rate on the junior subordinated debentures to fixed rate. The fair value of these instruments amounted to a liability of approximately $3.0 million and $2.0 million at June 30, 2012 and December 31, 2011, respectively, and an asset of approximately $243,000 at June 30, 2011. No hedge ineffectiveness from cash flow hedges was recognized in the statement of operations. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness.

Additionally, beginning in the second quarter of 2012, the Company began maintaining a risk management program to manage interest rate risk and pricing risk associated with its mortgage lending activities. This includes the use of forward contracts and other derivatives that are used to offset changes in value of the mortgage inventory due to changes in market interest rates. As a normal part of its operations, the Company enters into derivative contracts such as forward sale commitments and Interest Rate Lock Commitments (“IRLCs”) to economically hedge risks associated with overall price risk related to IRLCs and mortgage loans held-for-sale carried at fair value. The fair value of these instruments amounted to an asset of approximately $235,000 at June 30, 2012.

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 the following three key measurements:

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%.

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%.

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, 2012, under the regulatory capital standards, the Bank was considered “well capitalized” under all capital measurements. The following table sets forth the regulatory capital ratios of Ameris at June 30, 2012, December 31, 2011 and June 30, 2011.


	June 30, 2012			December 31, 2011			June 30, 2011
Leverage Ratio (tier 1 capital to average assets)
Consolidated		11.12	%		10.76	%		10.68	%
Ameris Bank		11.09			10.62			10.39
Core Capital Ratio (tier 1 capital to risk weighted assets)
Consolidated		19.32			18.80			18.64
Ameris Bank		19.27			18.61			18.19
Total Capital Ratio (total capital to risk weighted assets)
Consolidated		20.57			20.05			19.90
Ameris Bank		20.53			19.87			19.45

Capital Purchase Program

On November 21, 2008, the Company issued and sold to the United States Treasury (the “Treasury”), as part of its Troubled Asset Relief Program (“TARP”) Capital Purchase Program, 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 Company’s common stock, par value $1.00 per share (the “Common Stock”), at an exercise price of $11.48 per share. On June 14, 2012, the Preferred Shares were sold by the Treasury through a registered public offering as part of the Treasury’s efforts to wind down its remaining TARP bank investments. While the sale of the Preferred Shares to new investors did not result in any accounting entries and does not change the Company’s capital position, it eliminated many executive compensation and corporate governance restrictions that were applicable to the Company during the period in which the Treasury held its investment in the Preferred Shares. The Treasury continues to hold the Warrant, which, as a result of prior adjustments, is currently exercisable for 698,554.05 shares of Common Stock at an exercise price of $11.166 per share.

Cumulative dividends on the Preferred Shares will continue to accrue on the liquidation preference at a rate of 5% per annum for the first five years from initial issuance 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.

Interest Rate Sensitivity and Liquidity

The Company’s primary market risk exposures are credit risk, 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. The ALCO Committee 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, 2012, there were $3.8 million outstanding borrowings with the Company’s correspondent banks, compared to $20.0 million at December 31, 2011. There were no outstanding borrowings with the Company’s correspondent banks at June 30, 2011.

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


	June 30, 2012			March 31, 2012			December 31, 2011			September 30, 2011			June 30, 2011
Investment securities available for sale to total deposits		14.42	%		13.95	%		13.12	%		12.97	%		13.31	%
Loans (net of unearned income) to total deposits ⁽¹⁾		53.66	%		49.67	%		51.40	%		52.07	%		54.16	%
Interest-earning assets to total assets		84.41	%		84.06	%		82.96	%		82.23	%		83.97	%
Interest-bearing deposits to total deposits		83.14	%		83.32	%		84.74	%		86.52	%		87.34	%

(1)	Loans exclude covered assets where appropriate

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, 2012 were considered satisfactory. The Company is aware of no events or trends likely to result in a material change in liquidity.