Edgar Filing: Ameris Bancorp

form10q0907.htm

10-Q form10q0907.htm AMERIS BANCORP 10-Q 09-30-07

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, 2007

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

Commission File Number: 001-13901

AMERIS BANCORP

(Exact name of registrant as specified in its charter)

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

24 SECOND AVE., SE MOULTRIE, GA 31768

(Address of principal executive offices)

(229) 890-1111

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to befiled 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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Securities Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

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 13,539,120 shares of Common Stock outstanding as of November 5, 2007.

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AMERIS BANCORP

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		Page
Item 1.	Financial Statements
	Consolidated Balance Sheets at September 30, 2007, December 31, 2006 and September 30, 2006	3

	Consolidated Statements of Income and Comprehensive Income for the Nine Months and Quarters Ended September 30, 2007 and 2006	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006	5

	Condensed Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4.	Controls and Procedures	18

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	19

Item 1A.	Risk Factors	19

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19

Item 3.	Defaults Upon Senior Securities	19

Item 4.	Submission of Matters to a Vote of Security Holders	20

Item 5.	Other Information	20

Item 6.	Exhibits	20

Signatures		21

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AMERIS BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)


	September 30,			December 31,			September 30,
	2007			2006			2006
	(Unaudited)			(Audited)			(Unaudited)
Assets
Cash and due from banks	$	58,281		$	66,856		$	54,093
Federal funds sold & interest bearing deposits in banks		22,910			135,232			148,118
Securities available for sale, at fair value		301,977			283,192			266,546

Loans		1,593,014			1,442,951			1,373,071
Less: allowance for loan losses		26,434			24,863			23,905
Loans, Net		1,566,580			1,418,088			1,349,166

Premises and equipment, net		54,639			46,604			42,266
Intangible assets, net		5,126			6,099			5,640
Goodwill		54,675			54,365			42,933
Other assets		38,951			37,106			37,142
Total assets	$	2,103,139		$	2,047,542		$	1,945,904

Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand	$	192,707		$	221,592		$	226,939
Interest-bearing demand		586,891			545,564			517,300
Savings		57,080			63,255			66,645
Time deposits		871,177			879,752			830,082
Total deposits		1,707,855			1,710,163			1,640,966
Federal funds purchased & securities sold under agreements to repurchase		32,359			15,933			6,725
Other borrowings		116,500			75,500			76,287
Other liabilities		15,560			24,945			19,217
Subordinated deferrable interest debentures		42,269			42,269			42,269
Total liabilities		1,914,543			1,868,810			1,785,464


Stockholders' Equity
Common stock, par value $1; 30,000,000 shares authorized;14,869,134, 14,850,237 and 14,355,910 shares issued		14,869			14,850			14,356
Capital surplus		82,308			81,481			67,728
Retained earnings		103,805			95,523			91,589
Accumulated other comprehensive losses		(1,617	)		(2,529	)		(2,640	)
		199,365			189,325			171,033

Treasury stock, at cost, 1,329,939, 1,322,717 and 1,322,717 shares		(10,769	)		(10,593	)		(10,593	)
Total stockholders' equity		188,596			178,732			160,440
Total liabilities and stockholders' equity	$	2,103,139		$	2,047,542		$	1,945,904

See notes to unaudited consolidated financial statements.

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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,
	2007			2006			2007			2006
Interest income
Interest and fees on loans	$	33,479		$	28,553		$	95,811		$	78,384
Interest on taxable securities		3,480			2,986			10,252			8,678
Interest on nontaxable securities		175			156			530			381
Interest on deposits in other banks		317			899			2,017			1,956
Interest on federal funds sold		-			30			92			188
Total Interest Income		37,451			32,624			108,702			89,587

Interest expense
Interest on deposits		15,877			12,600			46,621			31,207
Interest on federal funds purchased & securities sold under agreements to repurchase		43			37			137			118
Interest on other borrowings		2,450			2,090			6,115			6,300
Total Interest Expense		18,370			14,727			52,873			37,625

Net interest income		19,081			17,897			55,829			51,962
Provision for loan losses		2,964			713			4,407			2,124
Net interest income after provision for loan losses		16,117			17,184			51,422			49,838

Other income
Service charges on deposit accounts		3,197			2,978			9,133			8,535
Mortgage banking activities		783			547			2,265			1,495
Other		680			1,730			2,422			2,960
Gain (loss) on sale of securities		(69	)		(3	)		(61	)		(308	)
Total Other Income		4,591			5,252			13,759			12,682

Other expense
Salaries and employee benefits		7,438			7,131			22,662			19,797
Equipment and occupancy expense		1,757			1,658			5,151			4,555
Amortization of intangible assets		324			344			973			785
Other operating expenses		5,650			4,348			14,607			12,723
Total Other Expense		15,169			13,481			43,394			37,860


Income before income taxes		5,539			8,955			21,787			24,660

Applicable income taxes		1,969			3,001			7,820			8,291

Net income	$	3,570		$	5,954		$	13,967		$	16,369

Other comprehensive income, net of tax:
Unrealized holding losses arising during period, net of tax		2,568			3,033			871			(218	)
Reclassification for losses included in net income, net of tax		46			2			41			203
	$	6,184		$	8,989		$	14,879		$	16,354

Income per common share-Basic	$	0.26		$	0.46		$	1.04		$	1.26

Income per common share-Diluted	$	0.26		$	0.45		$	1.02		$	1.24

Dividends declared per share	$	0.14		$	0.14		$	0.42		$	0.42

See notes to unaudited consolidated financial statements.

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AMERIS BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(dollars in thousands)
(Unaudited)


	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	13,967		$	16,369
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,299			2,129
Provision for loan losses		4,407			2,125
Amortization of intangible assets		973			561
Decrease in accrued expense		(2,295	)		(4,472	)
Other prepaids, deferrals and accruals, net		(4,809	)		5,688
Net cash provided by operating activities		14,542			22,400



CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease/(increase) in federal funds sold & interest bearing deposits		112,322			(119,191	)
Proceeds from maturities of securities available for sale		24,379			26,444
Purchase of securities available for sale		(52,273	)		(73,819	)
Proceeds from sales of securities available for sale		10,153			15,963
Net increase in loans		(151,623	)		(186,984	)
Purchases of premises and equipment		(10,334	)		(4,789	)
Net cash used in investing activities		(67,376	)		(342,376	)



CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in deposits		(2,309	)		265,734
Net decrease/(increase) in federal funds purchased & securities sold under agreements to repurchase		16,426			(3,582	)
Increase/(decrease) in other borrowings		41,000			(28,188	)
Dividends declared		(5,685	)		(5,464	)
Purchase of treasury shares		(176	)		(112)
Decrease in unfunded obligation on Islands acquisition		(5,120	)		-
Proceeds from exercise of stock options		122			407
Net cash provided by financing activities		44,258			228,795

Net decrease in cash and due from banks	$	(8,576	)	$	(91,181	)

Cash and due from banks at beginning of period		66,856			145,274

Cash and due from banks at end of period	$	58,281		$	54,093

See notes to unaudited consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2007

(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 46 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, 2007 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, 2006.

Certain amounts reported as of December 31, 2006 or the period ended September 30, 2006 have been reclassified to conform with the presentation for September 30, 2007. These reclassifications had no effect on previously reported net income or stockholders' equity.

Note 2 – Recent Business Combinations

On December 29, 2006, Ameris acquired 100 percent of the outstanding common shares of Islands Bancorp and its banking subsidiary, Islands Community Bank, NA (collectively, “Islands”). Islands was headquartered in Beaufort, South Carolina where it operated a single branch with satellite loan production offices in Bluffton, South Carolina and Charleston, South Carolina. The consideration for the acquisition was a combination of cash and common stock with an aggregate purchase price of approximately $19,055,000. The total consideration consisted of $5,121,000 in cash, and approximately 494,000 shares of Ameris Bancorp common stock with a value of approximately $13,934,000. The value of the shares of common stock issued of $28.18 was based on the average closing price of Ameris common stock for the 10 trading days immediately preceding the merger. Islands results of operations for 2006 are not included in Ameris’ consolidated financial results as the merger date occurred after close of business on the last day of the fiscal year.

Note 3 - Investment Securities

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

The amortized cost and estimated fair value of investment securities available for sale at September 30, 2007, December 31, 2006 and September 30, 2006 are presented below:

September 30, 2007

(dollars in thousands)

Amortized Cost

Unrealized Gains

Unrealized Losses

Estimated Fair Value

U. S. Government sponsored agencies

104,097

(780

)

103,405

State and municipal securities

18,428

(139

)

18,336

Corporate debt securities

9,784

(90

)

9,728

Mortgage backed securities

170,479

242

(2,011

)

168,709

Marketable equity securities

1,788

1,799

304,575

423

(3,020

)

301,977

	December 31, 2006
(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
U. S. Government sponsored agencies	$	103,207	$	31	$	(1,375	)	$	101,863
State and municipal securities		19,364		42		(472	)		18,934
Corporate debt securities		9,852		40		(63	)		9,829
Mortgage-backed securities		153,768		194		(2,144	)		151,818
Marketable equity securities		788		-		(40	)		748
	$	286,979	$	307	$	(4,094	)	$	283,192

	September 30, 2006
(dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
U. S. Government sponsored agencies	$	101,198	$	13	$	(1,394	)	$	99,817
State and municipal securities		16,436		34		(447	)		16,023
Corporate debt securities		4,530		44		(62	)		4,512
Mortgage-backed securities		148,175		47		(2,537	)		145,685
Marketable equity securities		567		-		(58	)		509
	$	270,906	$	138	$	(4,498	)	$	266,546

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Note 4 - Loans

The Company engages in a full complement of lending activities, including real estate-related loans, agriculture-related loans, commercial and financial loans and consumer installment loans. Ameris concentrates the majority of its lending activities on real estate loans where the historical loss percentages have been low. While risk of loss in the Company’s portfolio is primarily tied to the credit quality of the various borrowers, risk of loss may increase due to factors beyond Ameris’ control, such as local, regional and/or national economic downturns. General conditions in the real estate market may also impact the relative risk in the real estate portfolio. Of the target areas of lending activities, commercial and financial loans are generally considered to have a greater risk of loss than real estate loans or consumer installment loans.

The Company evaluates loans for impairment when a loan is risk rated as substandard or doubtful. 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. The Company’s policy for recognizing interest income on impaired loans is consistent with its nonaccrual policy. At the time the contractual 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 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, 2007		December 31, 2006		September 30, 2006
Commercial and financial	$	158,822	$	174,852	$	162,444
Agricultural		47,762		33,980		44,945
Real estate-construction		392,823		340,325		304,464
Real estate-mortgage, farmland		99,518		91,650		92,094
Real estate-mortgage, commercial		477,166		397,837		385,140
Real estate-mortgage, residential		356,156		339,843		320,055
Consumer installment loans		55,796		59,422		58,405
Other		4,971		5,042		5,524
	$	1,593,014	$	1,442,951	$	1,373,071

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Note 5 - Allowance for Loan Losses

Activity in the allowance for loan losses for the nine months ended September 30, 2007, for the year ended December 31, 2006 and for the nine months ended September 30, 2006 is as follows:

(dollars in thousands)	September 30, 2007			December 31, 2006			September 30, 2006
Balance, January 1	$	24,863		$	22,294		$	22,294
Provision for loan losses charged to expense		4,407			2,837			2,124
Loans charged off		(3,919	)		(3,198	)		(2,502	)
Recoveries of loans previously charged off		1,083			1,906			1,989
Allowance for loan losses of acquired subsidiary		-			1,024			-
Ending balance	$	26,434		$	24,863		$	23,905

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 and nine months ended September 30, 2007 and 2006:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2007

2006

2007

2006

(share data in thousands)

Basic shares outstanding

13,502

13,022

13,477

12,987

Plus: Dilutive effect of ISOs

117

204

161

170

Plus: Dilutive effect of Restricted Grants

Diluted shares outstanding

13,620

13,226

13,650

13,157

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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, 2007, total other borrowings amounted to $116.5 million compared to $76.3 million at September 30, 2006. The majority of these balances are comprised in the Company’s borrowing relationship with the FHLB of Atlanta. Total borrowings at the FHLB were $111.5 million and $71.0 million at September 30, 2007 and 2006, respectively. Increases in these borrowing levels were necessary as growth in deposits has not been adequate to fund the growth in earning assets over the period in question. Management believes that this imbalance is temporary and does not believe that significant growth in borrowings will be required to continue growing earning assets in the future.

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

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

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

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

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

(dollars in thousands)	September 30, 2007		September 30, 2006

Commitments to extend credit	$	211,111	$	191,553

Standby letters of credit		8,275		6,073

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Item 2.

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

Certain of the statements made in this report are “forward-looking statements” within the meaning of, and subject to the protections of, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance and involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control and which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation, legislative and regulatory initiatives; additional competition in Ameris’ markets; potential business strategies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by Ameris; state and federal banking regulations; changes in or application of environmental and other laws and regulations to which Ameris is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather, natural disasters and other catastrophic events; and other factors discussed in Ameris’ filings with the Securities and Exchange Commission under the Exchange Act.

All written or oral forward-looking statements that are made by or are attributable to us are expressly qualified in their entirety by this cautionary notice. Our forward-looking statements apply only as of the date of this report or the respective date of the document from which they are incorporated herein by reference. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made, whether as a result of new information, future events or otherwise.

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, 2007 as compared to December 31, 2006 and operating results for the three-month and nine-month periods ended September 30, 2007 as compared to the three-month and nine-month periods ended September 30, 2006. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

The Company’s total assets increased $55.6 million from December 31, 2006 to $2.10 billion. Earning assets increased $56.5 million, or 3.0%, during the same period. Short term assets (federal funds sold and interest bearing deposits in banks) decreased $112.3 million due to an increase in loan demand and purchases of investment securities. Loans increased 10.4%, or $150.1 million, since December 31, 2006, while the investment portfolio increased $18.8 million, or 6.6%. Total deposits were virtually unchanged on September 30, 2007 at $1.7 billion, a decrease of 0.13%, or $2.3 million when compared to December 31, 2006.

The growth in the balance sheet and earning assets contributed to solid growth in net interest income. Net interest income for the three months ended September 30, 2007 increased $1.2 million, or 6.6%, to $19.1 million compared to the three months ended September 30, 2006. Net interest income for the nine months ended September 30, 2007 increased 7.4% to $55.8 million from $52.0 million for the nine months ended September 30, 2006. This increase in net interest income is the result of several factors, the most significant of which are the internal growth in earning assets, effective management of yields on earning assets and efforts to control the Company’s cost of funds.

Return on average equity for the nine months ended September 30, 2007 and 2006 was 10.10% and 14.33%, respectively, on average equity of $184.8 million and $152.8 million, respectively. Return on average assets for the nine months ended September 30, 2007 and 2006 was 0.92% and 1.24%, respectively. Decreases in profitability levels are attributable to several items:

Lower net interest margins resulting primarily from the persistent flat or inverted yield curve. The Company’s base of funding (deposits and wholesale borrowings) is more closely tied to short term rates while asset yields are more closely tied to longer term rates (from two year to ten year durations). Yield curves in recent months have returned to positive spreads although spreads between short-term rates and long-term rates are still historically small. In addition to pressures from flat or inverted yield curves, the Company has experienced some dilution in margins from its expansion efforts in larger markets. These efforts generally require higher deposit rates in the early years and as a result contribute lower levels of margin than what the Company has historically reported.

Higher operating expense burdens associated with several ongoing projects including the efforts to centralize backroom operations and efforts to expand the Company’s footprint in certain markets. Efforts to centralize backroom functions are nearing completion and should start reflecting savings in the near future. As the new staff becomes trained and effective at levels management believes are appropriate, overall staffing levels will begin to reflect the efficiencies of centralized back room operations. Efforts to expand the Company’s footprint have resulted in new offices in Jacksonville, Florida, and Columbia, Charleston, and Hilton Head, South Carolina during 2007. Management believes that it takes approximately 12 months to break even in these new offices and believes that trends in operating expenses will normalize as the building program slows.

·	Higher provision for loan loss and other costs associated with credit quality. These costs are discussed later in this report.

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The following table sets forth unaudited selected financial data for the previous five quarters and for the nine-month periods ending September 30, 2007 and 2006. This data should be read in conjunction with the consolidated financial statements and the notes thereto and the information contained in this Item 2.

	2007						2006				For Nine Months Ended
(in thousands, except share data, taxable equivalent)	Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		2007		2006
Results of Operations:
Net interest income	$	19,081	$	18,330	$	18,419	$	17,913	$	17,897	$	55,829	$	51,962
Net interest income (tax equivalent)		19,257		18,722		18,565		18,065		18,046		56,542		52,257
Provision for loan losses		2,964		936		507		713		713		4,407		2,124
Non-interest income		4,591		4,643		4,525		7,022		5,252		13,759		12,682
Non-interest expense		15,170		13,780		14,444		15,625		13,481		43,394		37,860
Net income		3,570		5,373		5,024		5,758		5,954		13,967		16,369
Selected Average Balances:
Loans, net of unearned income	$	1,569,906	$	1,511,333	$	1,458,725	$	1,377,824	$	1,351,601	$	1,513,321	$	1,284,957
Investment securities		299,925		301,848		292,979		272,769		266,450		298,251		267,657
Earning assets		1,896,044		1,862,381		1,837,001		1,776,925		1,682,425		1,865,142		1,605,674
Assets		2,069,715		2,030,018		2,014,040		1,946,772		1,851,073		2,039,664		1,764,864
Deposits		1,695,239		1,693,020		1,688,885		1,627,188		1,529,441		1,693,501		1,442,810
Shareholders’ equity		187,290		185,177		181,645		169,135		155,922		184,829		152,775
Period-End Balances:
Loans, net of unearned income	$	1,593,014	$	1,556,862	$	1,475,869	$	1,442,951	$	1,373,071	$	1,593,014	$	1,373,071
Earning assets		1,917,901		1,873,846		1,870,687		1,861,375		1,787,735		1,917,901		1,787,735
Total assets		2,103,139		2,049,073		2,036,413		2,047,542		1,945,904		2,103,139		1,945,904
Deposits		1,707,855		1,695,185		1,712,507		1,710,163		1,640,966		1,707,855		1,640,966
Other borrowings		153,769		142,769		117,769		112,769		118,556		153,769		118,556
Shareholders’ equity		188,596		184,099		182,764		178,732		160,440		188,596		160,440
Per Common Share Data:
Earnings per share-Basic	$	0.26	$	0.40	$	0.37	$	0.44	$	0.46	$	1.04	$	1.26
Earnings per share – Diluted		0.26		0.39		0.37		0.43		0.45		1.02		1.24
Book value per share		13.93		13.60		13.51		13.24		12.31		13.93		12.31
End of period shares outstanding		13,539,195		13,541,476		13,527,520		13,553,002		13,033,193		13,539,195		13,033,193
Weighted average shares outstanding
Basic		13,501,663		13,485,683		13,443,850		13,044,493		13,022,400		13,477,065		12,986,788
Diluted		13,620,069		13,663,072		13,667,509		13,269,289		13,226,055		13,650,217		13,156,784
Market Price:
High Closing Price		23.05		25.58		28.15		28.99		27.77		27.94		27.91
Low Closing Price		17.72		21.76		23.11		25.77		20.99		17.72		19.35
Closing Price for Quarter		18.08		22.47		24.33		28.18		27.07