| Ameris Bancorp ITEM 1A RISK FACTORS An investment in the common stock of Ameris is subject to risks inherent in the Company’s business |
| The material risks and uncertainties that management believes affect Ameris are described below |
| Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this Annual Report |
| The risks and uncertainties described below are not the only ones facing the Company |
| Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations |
| This Annual Report is qualified in its entirety by these risk factors |
| If any of the following risks actually occurs, the Company’s financial condition and results of operations could be materially and adversely affected |
| If this were to happen, the value of the common stock of Ameris could decline significantly, and you could lose all or part of your investment |
| 16 ______________________________________________________________________ [61]Table of Contents [62]Index to Financial Statements Changes in interest rates could adversely impact the Company’s financial condition and results of operations |
| The Company’s earnings and cash flows are largely dependent upon its net interest income |
| Net interest income is the difference between interest income earned on interest-earning assets, such as loans and securities, and interest expense paid on interest-bearing liabilities, such as deposits and borrowed funds |
| Interest rates are highly sensitive to many factors that are beyond the control of Ameris, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board of Governors |
| Changes in monetary policy, including changes in interest rates, could influence not only the interest the Company receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect the Company’s ability to originate loans and obtain deposits, the fair value of the Company’s financial assets and liabilities and the average duration of the Company’s mortgage-backed securities portfolio |
| If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Company’s net interest income and, therefore, its earnings, could be adversely affected |
| Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings |
| Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on the Company’s results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the Company’s financial condition and results of operations |
| If the Company has higher loan losses than it has allowed for, its earnings could materially decrease |
| The Company’s loan customers may not repay loans according to their terms, and the collateral securing the payment of loans may be insufficient to assure repayment |
| Ameris may therefore experience significant credit losses which could have a material adverse effect on its operating results |
| Ameris makes various assumptions and judgments about the collectibility of its loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans |
| In determining the size of the allowance for loan losses, the Company relies on its experience and its evaluation of economic conditions |
| If its assumptions prove to be incorrect, its current allowance for loan losses may not be sufficient to cover losses inherent in its loan portfolio and adjustment may be necessary to allow for different economic conditions or adverse developments in its loan portfolio |
| Consequently, a problem with one or more loans could require the Company to significantly increase the level of its provision for loan losses |
| In addition, federal and state regulators periodically review the Company’s allowance for loan losses and may require it to increase its provision for loan losses or recognize further loan charge-offs |
| Material additions to the allowance would materially decrease the Company’s net income |
| Ameris has a high concentration of loans secured by real estate and a downturn in the real estate market, for any reason, could result in losses and materially and adversely affect business, financial condition, results of operations and future prospects |
| A significant portion of the Company’s loan portfolio is dependent on real estate |
| In addition to the financial strength and cash flow characteristics of the borrower in each case, often loans are secured with real estate collateral |
| At December 31, 2005, approximately 53dtta85prca of loans have commercial or residential real estate as a component of collateral |
| The real estate in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended |
| An adverse change in the economy affecting values of real estate generally or in Ameris’s primary markets specifically could significantly impair the value of collateral and ability to sell the collateral upon foreclosure |
| Furthermore, it is likely that, in a decreasing real estate market, Ameris would be required to increase its allowance for loan losses |
| If the Company is required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values or to increase its allowance for loan losses, its profitability and financial condition could be adversely impacted |
| 17 ______________________________________________________________________ [63]Table of Contents [64]Index to Financial Statements Ameris operates in a highly regulated environment and may be adversely impacted by changes in law and regulations |
| Ameris, primarily through its Banks, is subject to extensive federal and state regulation and supervision |
| Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not shareholders |
| These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things |
| Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes |
| Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Company in substantial, unpredictable and adverse ways |
| Such changes could subject the Company to additional costs, limit the types of financial services and products the Company may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things |
| Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the Company’s business, financial condition and results of operations |
| While the Company has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur |
| Ameris relies on dividends from its subsidiaries for most of its revenue |
| Ameris Bancorp is a separate and distinct legal entity from its subsidiaries |
| It receives substantially all of its revenue from dividends from the Banks |
| These dividends are the principal source of funds to pay dividends on the Company’s common stock and interest and principal on the Company’s debt |
| Various federal and/or state laws and regulations limit the amount of dividends that the Banks may pay to the Company |
| Also, the Company’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors |
| In the event the Banks are unable to pay dividends to the Company, the Company may not be able to service debt, pay obligations or pay dividends on the Company’s common stock and its business, financial condition and results of operations may be adversely affected |
| Ameris operates in a highly competitive industry and market areas |
| Ameris faces substantial competition in all areas of its operations from a variety of different competitors, many of whom are larger and may have more financial resources |
| Such competitors primarily include national, regional and community banks within the various markets in which the Banks operate |
| Ameris also faces competition from many other types of financial institutions, including, without limitation, savings and loan institutions, credit unions, finance companies, brokerage firms, insurance companies, factoring companies and other financial intermediaries |
| The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation |
| Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking |
| Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems |
| Many of the Company’s competitors have fewer regulatory constraints and may have lower cost structures |
| Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than the Company can |
| 18 ______________________________________________________________________ [65]Table of Contents [66]Index to Financial Statements The Company’s ability to compete successfully depends on a number of factors, including, among other things: • the ability to develop, maintain and build upon long-term customer relationships based on quality service, high ethical standards and safe, sound assets; • the ability to expand the Company’s market position; • the scope, relevance and pricing of products and services offered to meet customer needs and demands; • the rate at which the Company introduces new products and services relative to its competitors; • customer satisfaction with the Company’s level of service; and • industry and general economic trends |
| Failure to perform in any of these areas could significantly weaken the Company’s competitive position, which could adversely affect the Company’s growth and profitability, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations |
| Potential acquisitions may disrupt the Company’s business and dilute shareholder value |
| Acquiring other banks, businesses or branches involves various risks commonly associated with acquisitions, including, among other things: • potential exposure to unknown or contingent liabilities of the target company; • exposure to potential asset quality issues of the target company; • difficulty and expense of integrating the operations and personnel of the target company; • potential disruption to the Company’s business; • potential diversion of the Company’s management’s time and attention; • the possible loss of key employees and customers of the target company; • difficulty in estimating the value of the target company; and • potential changes in banking or tax laws or regulations that may affect the target company |
| Ameris has recently acquired other financial institutions and often evaluates additional merger and acquisition opportunities related to possible transactions with other financial institutions and financial services companies |
| As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving cash, debt or equity securities of the Company may occur at any time |
| Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of the Company’s tangible book value and net income per common share may occur in connection with any future transaction |
| Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence and/or other projected benefits and synergies from an acquisition could have a material adverse effect on the Company’s financial condition and results of operations |
| 19 ______________________________________________________________________ [67]Table of Contents [68]Index to Financial Statements Ameris continually encounters technological change |
| The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services |
| The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs |
| The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Company’s operations |
| Many of the Company’s competitors have substantially greater resources to invest in technological improvements |
| The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers |
| Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on the Company’s business and, in turn, the Company’s financial condition and results of operations |
| The Company’s success depends, in large part, on its ability to attract and retain key people |
| Competition for the best people in most activities engaged in by the Company can be intense and the Company may not be able to hire people or to retain them |
| The unexpected loss of services of one or more of the Company’s key personnel could have a material adverse impact on the Company’s business because of their skills, knowledge of the Company’s market, years of industry experience and the difficulty of promptly finding qualified replacement personnel |
| Financial services companies depend on the accuracy and completeness of information about customers and counterparties |
| In deciding whether to extend credit or enter into other transactions, the Company may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information |
| The Company may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information |
| Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on the Company’s business and, in turn, the Company’s financial condition and results of operations |