OVERVIEW

The Company's Ameris Bancorp's performance in 2008 was impacted by a number of significant items. Credit costs (net charge-offs and provisions for loan losses) were at record high levels for the Bank in 2008 as residential real estate values continued to fall. Our Florida markets were especially vulnerable to declining values and activity and accounted for more than 50% of 2008's provision for loan losses.

In addition to a general slow-down in real estate activity, our industry dealt with tighter liquidity than had been seen in prior years. The lower levels of available liquidity in the marketplace led to unusually high borrowing costs that kept interest expense at elevated levels through most of 2008.

Balance sheet growth was limited in 2008 compared to recent years. The combination of fewer loan opportunities and the Company's efforts to reduce its exposure in certain loan concentrations caused the growth in loans to be held to approximately 5%. The majority of the Company's deposit growth was limited to time deposits although some markets enjoyed success selling a high yield checking account. The Company has focused a significant amount of resources towards improving its deposit mix and funding a significant majority of its future growth with low-cost or transaction based deposit accounts.

The importance of strong capital and liquidity was highlighted in the last half of the year as a growing number of larger regional banks and investment banks suffered and were in some cases, merged with other institutions. Ameris had managed strong liquidity and capital levels proactively for several years before the crisis began. In the fourth quarter of 2008, the Company took steps to further bolster its capital and liquidity positions. On the capital front, the Company elected to participate in the CPP and issued $52 million of preferred shares to the Treasury. This transaction with the Treasury is discussed in detail elsewhere in this Annual Report. For liquidity, the Company adopted an aggressive stance on local deposits and had several fourth quarter campaigns that raised approximately $200 million in incremental, local market deposits.

For the year ended December 31, 2008, Ameris reported a net loss available to common stockholders of $4.2 million or $0.31 per diluted share, compared to net income of $15.2 million, or $1.11 per diluted share in 2007.

Net interest income decreased during the year ended December 31, 2008 by 3.2% to $72.7 million compared to $75.1 million for year ended December 31, 2007. The Company's net interest margin decreased from 4.02% in 2007 to 3.65% in 2008. The decline was primarily related to borrowing costs that remained somewhat elevated as asset yields fell commensurately with national indices that reached historic lows.

Non-interest income grew during the year 8.5% to $19.1 million from $17.6 million during 2007. The majority of this increase related to increases in service charges on deposit accounts which increased to $13.9 million in 2008 compared to $12.5 million in 2007. This increase in service charges related to increases in the number of account holders subject to charges as well as minor increases in various fee schedules.

Total operating expenses grew 6.6% in 2008 to $62.8 million, compared to $58.9 million in 2007. Salaries and benefits during 2008 were $31.7 million, an increase of 6.2% as compared to $29.8 million in 2007. These increases are mostly the result of expansion efforts in larger markets where the Company opened nine offices during 2008. Occupancy and equipment expense increased during 2008 to $8.1 million, an increase of 7.0% as compared to 2007. This increase also relates to expansion efforts in larger markets, the costs of which were offset to some degree by savings from branch closings during 2008.

Provisions for loan losses in 2008 were significantly higher than levels incurred in 2007 as the economic conditions of our local economies were affected by slowing real estate activity and lower real estate values. For the year ended December 31, 2008, the Company recorded $35.0 million in provision for loan losses compared to $11.3 million in 2007, an increase of $23.7 million. Net charge-offs were also higher in 2008 at $23.0 million or 1.36% of average loans, compared to $8.5 million or 0.53% of average loans in 2007.

CRITICAL ACCOUNTING POLICIES

Ameris has established certain accounting and financial reporting policies to govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements. Our significant accounting policies are described in the Notes to the Consolidated Financial Statements. Certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities; management considers these accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from the judgments and estimates adopted by management which could have a material impact on the carrying values of assets and liabilities and the results of Ameris' operations. We believe the following accounting policies applied by Ameris represent critical accounting policies.

Allowance for Loan Losses

We believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of our consolidated financial statements. The allowance for loan losses represents management's estimate of probable loan losses inherent in the Company's loan portfolio. Calculation of the allowance for loan losses represents a critical accounting estimate due to the significant judgment, assumptions and estimates related to the amount and timing of estimated losses, consideration of subjective environmental factors and the amount and timing of cash flows related to impaired loans.

Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination processes, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination.

Considering current information and events regarding a borrower's ability to repay its obligations, management considers a loan to be impaired when the ultimate collectability of all amounts due, according to the contractual terms of the loan agreement, is in doubt. When a loan is considered to be impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or if the loan is collateral-dependent, the fair value of the collateral is used to determine the amount of impairment. Impairment losses are included in the allowance for loan losses through a charge to the provision for losses on loans.

Subsequent recoveries are credited to the allowance for loan losses. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement. Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income.

Certain economic and interest rate factors could have a material impact on the determination of the allowance for loan losses. An increase in interest rates by the Federal Reserve would favorably impact our net interest margin. An improving economy could result in the expansion of businesses and creation of jobs which would positively affect Ameris' loan growth and improve our gross revenue stream. Conversely, certain factors could result from an expanding economy which could increase our credit costs and adversely impact our net earnings. A significant rapid rise in interest rates could create higher borrowing costs and shrinking corporate profits which could have a material impact on a borrower's ability to pay. We will continue to concentrate on maintaining a high quality loan portfolio through strict administration of our loan policy.

Another factor that we have considered in the determination of the allowance for loan losses is loan concentrations to individual borrowers or industries. We had two credit relationships that exceed our in-house credit limit of $5.0 million. Total exposure to these two credits is $14.8 million.

A substantial portion of our loan portfolio is in the commercial real estate and residential real estate sectors. Those loans are secured by real estate in Ameris' primary market areas. A substantial portion of other real estate owned is located in those same markets. Therefore, the ultimate collectability of a substantial portion of our loan portfolio and the recovery of a substantial portion of the carrying amount of other real estate owned are susceptible to changes to market conditions in Ameris' primary market area.

Income Taxes

SFAS No. 109, "Accounting for Income Taxes," requires the asset and liability approach for financial accounting and reporting for deferred income taxes. We use the asset and liability method of accounting for deferred income taxes and provide deferred income taxes for all significant income tax temporary differences. See Note 12 to the Notes to Consolidated Financial Statements for additional details.

As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation and the provision for loan losses, for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities that are included in our consolidated balance sheet.

We must also assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. To the extent we establish a valuation allowance or adjust this allowance in a period, we must include an expense within the tax provisions in the statement of income.

We have recorded on our consolidated balance sheet net deferred tax assets of $10.9 million, which includes amounts relating to loss carryforwards. We believe there will be sufficient taxable income in the future to allow us to utilize these loss carryforwards in the tax jurisdictions where they exist.

Long-Lived Assets, Including Intangibles

In our financial statements, we have recorded $58.4 million of goodwill and other intangible assets, which represents the amount by which the price we paid for acquired businesses exceeds the fair value of tangible assets acquired plus the liabilities assumed. We evaluate long-lived assets, such as property and equipment, specifically identifiable intangibles and goodwill, when events or changes in circumstances indicate that the carrying value of such assets might not be recoverable. Factors that could trigger impairment include significant underperformance relative to historical or projected future operating results, significant changes in the manner of our use of the acquired assets and significant negative industry or economic trends.

The determination of whether impairment has occurred is based on an estimate of undiscounted cash flows attributable to the assets as compared to the carrying value of the assets. If impairment has occurred, the amount of the impairment loss recognized would be determined by estimating the fair value of the assets and recording a loss if the fair value was less than the book value. During 2008, the Company determined there was the potential for impairment due to significant declines in the Company's market value. As a result, the Company engaged an independent party who reviewed business strategies as well as current and forecasted levels of earnings and capital. The study indicated that the Company's goodwill was not impaired and as a result, no adjustments were made to the carrying value of goodwill.

In determining the existence of impairment factors, our assessment is based on market conditions, operational performance and legal factors of our Company. Our review of factors present and the resulting appropriate carrying value of our goodwill, intangibles and other long-lived assets are subject to judgments and estimates that management is required to make. Future events could cause us to conclude that impairment indicators exist and that our goodwill, intangibles and other long-lived assets might be impaired. In accordance with accounting rules promulgated by the Financial Accounting Standards Board ("FASB"), no goodwill was expensed in 2008, 2007 or 2006.

NET INCOME/(LOSS) AND EARNINGS PER SHARE

In 2008, we reported a net loss available to common stockholders of $4.2 million, or $0.31 per diluted share, compared to net income of $15.2 million, or $1.11 per diluted share in 2007 and $22.1 million, or $1.68 per diluted share, in 2006. Our return on average assets was (0.19%), 0.74% and 1.22% in 2008, 2007 and 2006, respectively. Our return on average stockholders' equity was (2.22%), 8.14% and 13.90% in 2008, 2007 and 2006, respectively.

EARNING ASSETS AND LIABILITIES

Average earning assets in 2008 increased 7.8% to $2.03 billion as compared to 2007. The earning asset and interest-bearing liability mix is constantly monitored to maximize the net interest margin and therefore increase return on assets and shareholders equity.

The following statistical information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operation" and the financial statements and related notes included elsewhere in this Annual Report and in the documents incorporated herein by reference.

The following tables set forth the amount of our interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net yield on average interest-earning assets. Federally tax-exempt income is presented on a taxable-equivalent basis assuming a 35% federal tax rate.

                                                                                             Year Ended December 31,
                                                              2008                                    2007                                    2006
                                                             Interest     Average                    Interest     Average                    Interest     Average
                                                 Average      Income/     Yield/         Average      Income/     Yield/         Average      Income/     Yield/
                                                 Balance      Expense    Rate Paid       Balance      Expense    Rate Paid       Balance      Expense    Rate Paid
                                                                                             (Dollars in Thousands)

ASSETS
Interest-earning assets:
Loans                                          $ 1,667,483   $ 114,186        6.85 %   $ 1,536,243   $ 129,376        8.42 %   $ 1,308,405   $ 107,809        8.24 %
Investment securities                              309,109      15,517        5.02         298,036      14,785        4.96         267,343      12,550        4.69
Short-term assets                                   49,082         507        1.03          45,634       2,349        5.15          72,183       3,843        5.32


Total earning assets                             2,025,674     130,210        6.43       1,879,913     146,510        7.79       1,647,931     124,202        7.54


Non-earning assets                                 175,362                                 175,015                                 165,839


Total assets                                   $ 2,201,036                             $ 2,054,928                             $ 1,813,770

LIABILITIES
AND STOCKHOLDERS' EQUITY

Interest-bearing liabilities:
Savings and interest-bearing demand deposits   $   656,876   $  11,611        1.77 %   $   634,287   $  18,014        2.84 %   $   521,783   $  11,397        2.18 %
Time deposits                                      968,124      40,331        4.17         874,609      44,367        5.07         773,089      34,202        4.42
Other borrowings                                    22,294         497        2.22          16,425         722        4.40          11,910         514        4.32
FHLB advances                                      102,641       1,500        1.46          92,570       4,732        5.11          91,119       4,246        4.66
Trust preferred securities                          42,269       2,404        5.69          42,269       3,164        7.49          41,841       3,791        8.20

Total interest-bearing liabilities               1,792,204      56,343        3.14       1,660,160      70,999        4.28       1,439,742      54,150        3.76


Demand deposits                                    198,422                                 192,575                                 194,150
Other liabilities                                   13,566                                  15,880                                  20,684
Stockholders' equity                               196,844                                 186,313                                 159,194


Total liabilities and stockholders' equity     $ 2,201,036                             $ 2,054,928                             $ 1,813,770

Interest rate spread                                                          3.29 %                                  3.52 %                                  3.78 %

Net interest income                                          $  73,867                               $  75,511                               $  70,052


Net interest margin                                                           3.65 %                                  4.02 %                                  4.25 %

RESULTS OF OPERATIONS

Net Interest Income

Net interest income represents the amount by which interest income on interest-bearing assets exceeds interest expense incurred on interest-bearing liabilities. Net interest income is the largest component of our income and is affected by the interest rate environment and the volume and composition of interest-earning assets and interest-bearing liabilities. Our interest-earning assets include loans, investment securities, interest-bearing deposits in banks and federal funds sold. Our interest-bearing liabilities include deposits, other short-term borrowings, FHLB advances and subordinated debentures.

2008 compared with 2007:

For the year ended December 31, 2008, interest income was $129.0 million, a decrease of $17.1 million, or 11.7%, compared to the same period in 2007. Average earning assets increased $145.8 million, or 7.8%, to $2.03 billion for the year ended December 31, 2008 compared to $1.88 billion as of December 31, 2007. Yield on average earning assets on a taxable equivalent basis for 2007 decreased to 6.43% compared to 7.79% for the year ended December 31, 2007. The change in yields on earning assets during 2008 resulted from a lower interest rate environment in 2008 than in 2007 with benchmark interest rates falling to historic lows as well as increased levels of non-accrual loans where foregone interest income was approximately $4.6 million.

Interest expense on deposits and other borrowings for the year ended December 31, 2008 was $56.3 million, compared to $71.0 million for the year ended December 31, 2007. During 2008, average funding increased $137.9 million or 7.4%. The majority of this growth in average total funding was in time deposits which increased 10.7%. Average non-deposit borrowings increased 10.5% during 2008 as the Company used these lines more aggressively to counter the higher costs of deposits.

During 2008, yields on average deposit borrowings fell to 2.85% from 3.67% in 2007. Although the fall in deposit yields was significant, its level relative to falling interest income was not sufficient to preserve normal levels of net interest margin. As the year came to a close, yields on deposit borrowings began to react positively to government intervention aimed at increasing liquidity levels. Non-deposit borrowings decreased substantially from 5.70% in 2007 to 2.63% in 2008 as the majority of these deposits are tied to national rate indices that fell during 2008 to historically low levels.

On a taxable-equivalent basis, net interest income for 2008 was $74.0 million compared to $75.5 million in 2007, a decrease of 2.0%. The Company's net interest margin, on a tax equivalent basis, decreased to 3.65% for the year ended December 31, 2008 compared to 4.02% in the prior year.

2007 compared with 2006:

Interest income for the year ended December 31, 2007 was $146.1 million, an increase of $22.0 million, or 17.7%, compared to the same period in 2006. Average earning assets increased $232.0 million, or 14.1%, to $1.88 billion for the year ended December 31, 2007 compared to $1.65 billion as of December 31, 2006. The yield on average earning assets on a taxable equivalent basis for 2007 increased to 7.79% compared to 7.54% and 6.53% for the years ended December 31, 2006 and 2005, respectively. The increase in yields on earning assets during 2007 is primarily attributed to better pricing opportunities on fixed rate loans with steady levels of benchmark interest rates for variable rate loans.

Interest expense on deposits and other borrowings for the year ended December 31, 2007 was $71.0, a $16.9 million increase from the year ended December 31, 2006. Average interest-bearing liabilities increased by $217.9 million, or 13.3% to end the year at $1.85 billion. Rates on average interest-bearing liabilities rose to 3.83% from 3.29% and 2.60% as of December 31, 2006 and 2005, respectively. Our Company aggressively manages our cost of funds to achieve a balance between high levels of profitability and acceptable levels of growth.

On a taxable-equivalent basis, net interest income for 2007 was $75.5 million compared to $70.1 million in 2006, an increase of 7.7%. The Company's net interest margin, on a tax equivalent basis, decreased to 4.02% for the year ended December 31, 2007 compared to 4.25% as of December 31, 2006. Opportunities to improve the net interest margin proved limited during the year due to an interest rate environment dominated by an inverted yield curve, that gave way to falling short term rates late in 2007.

                                                               Year Ended December 31,
                                                2008 vs. 2007                            2007 vs. 2006
                                     Increase           Changes Due To         Increase          Changes Due To
                                    (Decrease)        Rate         Volume     (Decrease)        Rate        Volume
                                                                (Dollars in Thousands)
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans         $    (15,190 )   $ (26,284 )   $ 11,094   $     21,567     $ 18,798     $  2,769
Interest on securities:                     732           185          547          2,235        1,434          801
Short-term assets                        (1,842 )      (2,019 )        177         (1,494 )     (1,416 )        (78 )

Total interest income                   (16,300 )     (28,118 )     11,818         22,308       18,816        3,492


Expense from interest-bearing
liabilities:
Interest on savings and
interest-bearing demand deposits         (6,403 )      (7,045 )        642          6,617        2,444        4,173
Interest on time deposits                (4,035 )      (8,776 )      4,741         10,164        4,484        5,680
Interest on other borrowings               (225 )        (483 )        258            208          195           13
Interest on FHLB advances                (3,232 )      (3,747 )        515            486           68          418
Interest on trust preferred
securities                                 (760 )        (760 )          -           (627 )         35         (662 )

Total interest expense                  (14,656 )     (20,811 )      6,156         16,848        7,226        9,622


Net interest income                $     (1,644 )   $  (7,307 )   $  5,662   $      5,460     $ 11,590     $ (6,130 )

Provision for Loan Losses

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. As these factors change, the level of loan loss provision may change.

Decreases in credit quality during 2008 resulted in a provision for loan losses of $35.0 million, compared to $11.3 million for 2007 and $2.8 million in 2006. Net charge-offs in 2008 were also elevated from historical levels at 1.36% of average loans compared to 0.53% in 2007 and 0.10% in 2006.

At December 31, 2008, non-performing assets amounted to $70.2 million or 4.13% of total loans and OREO compared to 1.58% at December 31, 2007. Other real estate was approximately $4.7 million as of December 31, 2008, reflecting a 32.2% decline from the year ago period. The Company's reserve for loan losses at December 31, 2008 was $39.7 million or 2.34% of total loans, compared to $27.6 million and 1.71% and 1.72% at December 31, 2007 and 2006, respectively

Non-interest income

Following is a comparison of non-interest income for 2008, 2007 and 2006.

                                                   Years Ended December 31,
                                                 2008       2007         2006
                                                    (Dollars in Thousands)
         Service charges on deposit accounts   $ 13,916   $ 12,455     $ 11,538
         Mortgage banking activities              3,180      3,093        2,208
. . .