<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-16181
ABC BANCORP (A GEORGIA CORPORATION)
I.R.S. EMPLOYER IDENTIFICATION NUMBER 58-1456434
310 FIRST STREET, S.E., MOULTRIE, GEORGIA 31768
TELEPHONE NUMBER: (912) 890-1111
Securities registered pursuant to Section 12(b) of the Act
None
Securities registered pursuant to Section 12(g) of the Act
Common Stock, Par Value $1 Per Share
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
---- ----
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The registrant's total revenues for the fiscal year ended December 31, 1994 were
$24,353,000.
As of March 1, 1995, registrant had outstanding 2,514,575 shares of common
stock, $1 par value per share, which is registrant's only class of common stock.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $31,432,000.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report is incorporated by
reference from the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A not later than 120
days after the end of the fiscal year covered by this Annual Report.
<PAGE>
PART I
ITEM 1. BUSINESS OF THE COMPANY AND SUBSIDIARY BANKS
On August 21, 1981, ABC Bancorp ("ABC" or the "Company") was
organized as a registered bank holding company under the Federal Bank Holding
Company Act of 1956, as amended, and the bank holding company laws of Georgia.
merged with a subsidiary of ABC created for the purpose of organizing American
Bank into a one-bank holding company structure. Since that time, American Bank
has operated as a wholly-owned subsidiary of ABC.
In 1985, ABC acquired all of the outstanding common stock of
another one-bank holding company, Quitman Bancshares, Inc., in exchange for ABC
common stock. In connection with that acquisition, ABC acquired all of the
outstanding common stock of The Bank of Quitman ("Quitman Bank") which was a
wholly-owned subsidiary of Quitman Bancshares, Inc. Pursuant to terms of the
Reorganization Agreement and the Merger Agreement, Quitman Bancshares, Inc.
ceased to exist as a separate entity and Quitman Bank thus became a wholly-owned
subsidiary of ABC.
On July 1, 1986, ABC acquired all of the outstanding common
stock of Bank of Thomas County ("Thomas Bank") for cash and Thomas Bank became a
wholly-owned subsidiary of ABC.
In December 1986, ABC acquired all of the outstanding common
stock of The Citizens Bank of Tifton ("Tifton Bank") in exchange for cash and
ABC common stock.
On October 1, 1992, ABC acquired all of the outstanding common
stock of Cairo Banking Company ("CBC") for cash and CBC became a wholly-owned
subsidiary of ABC.
ABC is a bank holding company and does not engage in any
substantial business other than the normal banking services conducted by its
five wholly-owned bank subsidiaries, which are sometimes hereinafter
collectively referred to as the "Banks."
AMERICAN BANK
American Bank was incorporated on August 3, 1971 and operates a
full service banking business in Moultrie, Colquitt County, Georgia, providing
such banking services as checking and savings accounts, various other types of
time deposits and money transfers. As of December 31, 1994, American Bank
ranked, on the basis of total deposits, as the smallest of three banks in
Colquitt County.
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American Bank also finances various commercial, agricultural and
consumer transactions and makes and services both secured and unsecured loans to
individuals, firms and corporations. American Bank makes a variety of
residential, industrial, commercial and agricultural loans secured by real
estate, including interim construction financing. American Bank acts as agent
for Trust Company Bank, Atlanta, Georgia in offering "MasterCard" and "VISA"
credit cards to its customers. American Bank also offers individual trust
services.
At December 31, 1994, American Bank had correspondent
relationships with eight other commercial banks in Georgia. American Bank's
principal correspondent bank is Trust Company Bank, Atlanta, Georgia. These
correspondent banks provide certain services to American Bank such as processing
checks and other items, buying and selling Federal funds, handling money
transfers and exchanges, shipping coin and currency, providing security and
safekeeping of funds or other valuable items, and furnishing limited management
information and advice. As compensation for these services, American Bank
maintains certain balances with its correspondents in noninterest-bearing
accounts.
QUITMAN BANK
Quitman Bank was founded on December 26, 1888, and operates a
general banking business in Quitman, Brooks County, Georgia. On December 31,
1994, Quitman Bank ranked, on the basis of total deposits, as the largest of
four banks in Brooks County, Georgia.
Among the services provided by Quitman Bank are checking
accounts and savings accounts, certificates of deposit and money transfers.
Quitman Bank finances a variety of agricultural, commercial and consumer
transactions and also makes secured and unsecured loans, including loans secured
by real estate, to individuals, firms and corporations and purchases installment
obligations from retailers without recourse. Quitman Bank does not conduct trust
activities.
As of December 31, 1994, Quitman Bank had correspondent
relationships with six other commercial banks. Quitman Bank's principal
correspondent bank is Trust Company Bank, Atlanta, Georgia.
THOMAS BANK
Thomas Bank was incorporated in 1911 and operates a full service
banking business in Coolidge, Thomas County, Georgia, providing such banking
services as checking and savings accounts, other types of time deposits and
money transfers. As of December 31, 1994, Thomas Bank ranked, on the basis of
total deposits, as the smallest of seven banks in Thomas County.
Thomas Bank also finances commercial, agricultural and consumer
transactions and makes and services both secured and unsecured loans to
individuals, firms and corporations. Thomas Bank makes a variety of residential,
industrial, commercial and agricultural loans secured by real estate, including
interim construction financing.
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At December 31, 1994, Thomas Bank had a correspondent
relationship with two other commercial banks. Thomas Bank's principal
correspondent bank is Trust Company Bank, Atlanta, Georgia. This correspondent
bank provides certain services to Thomas Bank, such as processing checks and
other items, buying and selling Federal funds, handling money transfers and
exchanges, shipping coin and currency, providing security and safekeeping of
funds or other valuable items and furnishing limited management information and
advice. As compensation for these services, Thomas Bank maintains certain
balances with its correspondents in noninterest-bearing accounts.
TIFTON BANK
Tifton Bank was incorporated in 1945 and operates a full service
banking business in Tifton, Tift County, Georgia, providing such banking
services as checking and savings accounts, other types of time deposits and
money transfers. As of December 31, 1994, Tifton Bank ranked, on the basis of
total deposits, as the fourth largest of six banks in Tift County.
Tifton Bank also finances commercial, agricultural and consumer
transactions and makes and services both secured and unsecured loans to
individuals, firms and corporations. Tifton Bank makes a variety of residential,
industrial, commercial and agricultural loans secured by real estate, including
interim construction financing. Tifton Bank acts as agent for a major Albany,
Georgia bank in offering "VISA" credit cards to its customers.
At December 31, 1994, Tifton Bank had correspondent
relationships with six other commercial banks. Tifton Bank's principal
correspondent bank is Trust Company Bank, Atlanta, Georgia. These correspondent
banks provide certain services to Tifton Bank, such as processing checks and
other items, buying and selling Federal funds, handling money transfers and
exchanges, shipping coin and currency, providing security and safekeeping of
funds or other valuable items and furnishing limited management information and
advice. As compensation for these services, Tifton Bank maintains certain
balances with its correspondents in noninterest-bearing accounts.
CAIRO BANK
Cairo Bank was incorporated in 1900 and operates a full service
banking business in Cairo in Grady County, Georgia and in Thomasville and Meigs
in Thomas County, Georgia, providing such banking services as checking and
savings accounts, other types of time deposits and money transfers. As of
December 31, 1994, Cairo Bank ranked as the second largest of five banks in
Grady County.
Cairo Bank also finances commercial, agricultural and consumer
transactions and makes and services both secured and unsecured loans to
individuals, firms and corporations. Cairo Bank makes a variety of residential,
industrial, commercial and agricultural loans secured by real estate, including
interim construction financing. Cairo Bank acts as its own agent in offering
"VISA" and "MasterCard" credit cards to its customers.
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At December 31, 1994, Cairo Bank had correspondent relationships
with five other commercial banks. Cairo Bank's principal correspondent is
Georgia Bankers Bank, Atlanta, Georgia. These correspondent banks provide
certain services to Cairo Bank, such as processing checks and other items,
buying and selling Federal funds, providing security and safekeeping of funds or
other valuable items and furnishing limited management information and advice.
As compensation for these services, Cairo Bank maintains certain balances with
its correspondents in noninterest-bearing accounts.
MARKET AREA AND COMPETITION
The Company's market area is a contiguous twelve-county area
located within an approximately 60-mile radius of Moultrie in south central
Georgia. 1-75 runs through the Company's market area, which is bordered on the
south by the Georgia-Florida state line. The Banks have offices in Colquitt
County, Tift County, Thomas County, Brooks County and Grady County. As reported
by the United States Bureau of Census, this five-county area had a population in
1990 of approximately 146,000.
ABC's twelve banking facilities are located in communities whose
economies are based primarily on agriculture, manufacturing and light industry.
Textiles, meat processing and aluminum processing are among the leading
manufacturing industries in the Company's market area, represented by such firms
as Riverside Manufacturing Co., Sipco, Reynolds Metal Company, Tifton
Manufacturing, Wells Aluminum, Inc., W. B. Roddenberry, Inc., Wright's Nursery
and Flowers, Inc.
The banking industry in Georgia is highly competitive. In recent
years, intense market demands, economic pressures, rapidly fluctuating interest
rates and increased customer awareness of product and service differences among
financial institutions have forced banks to diversify their services and become
more cost effective. Each of the Banks faces strong competition in attracting
deposits and making loans. Their most direct competition for deposits comes from
other commercial banks, thrift institutions, credit unions and issuers of
securities such as shares in money market funds. Interest rates, convenience of
office locations and marketing are all significant factors in the Banks'
competition for deposits.
Competition for loans comes from other commercial banks, thrift
institutions, savings banks, insurance companies, consumer finance companies,
credit unions and other institutional lenders. The Banks compete for loan
originations through the interest rates and loan fees they charge and the
efficiency and quality of services they provide. Competition is affected by the
general availability of lendable funds, general and local economic conditions,
current interest rate levels and other factors that are not readily predictable.
Management expects that competition will become more intense in
the future due to changes in state and Federal laws and regulations and the
entry of additional bank and nonbank competitors. See SUPERVISION AND
REGULATION.
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PROPERTIES
The table below sets forth the location, size and other
information with respect to the Company's real properties. All properties are
owned by the Company or its subsidiaries and are unencumbered.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
OFFICES USED BY FOOTAGE
-------------------------------------------------------------------- -------------------------- --------------
<S> <C> <C>
310 First Street, S.E., Moultrie ABC Bancorp 7,000
225 South Main Street, Moultrie American Bank 9,000
1707 First Avenue, S.E., Moultrie American Bank 5,500
137 Broad Street, Doerun American Bank 3,860
1000 West Screven Street, Quitman Quitman Bank 11,530
Eastern Brooks County Quitman Bank 1,100
529 Pine Avenue, Coolidge Thomas Bank 4,000
East Railroad Street, Ochlocknee Thomas Bank 4,000
113 E. Eighth Street, Tifton Tifton Bank 5,800
Second Street at Magnolia Avenue, Tifton Tifton Bank 2,000
201 South Broad Street, Cairo Cairo Bank 10,000
12 East Depot Street, Meigs Cairo Bank 2,700
2242 East Pinetree Boulevard, Thomasville Cairo Bank (1) 3,000
</TABLE>
(1) This location will be used by Thomas Bank as of January 1, 1995.
EMPLOYEES
At December 31, 1994, ABC Bancorp and its subsidiaries employed
178 full-time employees and 20 part-time employees. ABC Bancorp considers its
relationship with its employees to be excellent.
In 1989, ABC adopted a master simplified employee benefit plan
covering substantially all employees. The Company and the Banks made
contributions for all eligible employees in 1994. ABC also maintains a
comprehensive employee benefits program providing, among other benefits,
hospitalization and major medical insurance and life insurance. Management
considers these benefits to be competitive with those offered by other financial
institutions in south Georgia. The Company's employees are not represented by
any collective bargaining group.
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SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under
both Federal and state law. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to those particular statutory and regulatory provisions. Any change
in applicable law or regulation may have a material effect on the business and
prospects of the Company and the Banks.
THE COMPANY
FEDERAL REGULATIONS
The Company is subject to the provisions of the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and to supervision by the Board of
Governors of the Federal Reserve System (the "FRB") thereunder. Under the BHCA,
a bank holding company must obtain FRB approval before it acquires direct or
indirect ownership or control of more than 5% of the outstanding shares of any
class of voting stock of any bank or bank holding company unless it already owns
a majority of the outstanding shares of any class of voting securities of such
bank or bank holding company. The approval of the FRB must also be obtained
before a bank holding company acquires all or substantially all of the assets of
a bank or merges or consolidates with another bank holding company (although the
FRB may not assert jurisdiction in certain bank mergers that are regulated under
the Bank Merger Act). The FRB may not approve any acquisition, merger or
consolidation that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or any attempt to monopolize the
business of banking in any part of the United States, nor may the FRB approve
any acquisition, merger or consolidation whose effect may be to substantially
lessen competition in any section of the country, or tend to create a monopoly,
or that would in any other manner be in restraint of trade, unless it finds that
the anti-competitive effects of the proposal are clearly outweighed in the
public interest by the probable effect of the transaction in meeting the
convenience and needs of the communities to be served. The FRB is prohibited,
however, from approving the acquisition by the Company of the voting shares of,
or substantially all the assets of, any bank located outside Georgia, unless
such acquisition is specifically authorized by the laws of the state in which
the bank is located. In considering any application for approval of an
acquisition or merger, the FRB is also required to consider the financial and
managerial resources of the companies and banks concerned, the convenience and
needs of the communities to be served, and the applicant's record of compliance
with the Community Reinvestment Act (the "CRA"). The CRA generally requires such
financial institution to take affirmative action to ascertain and meet the
credit needs of its entire community, including low and moderate income
neighborhoods. Each of the Banks has received a "satisfactory" rating based upon
their most recent examination.
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In addition, the BHCA prohibits the FRB from approving an
application by a bank holding company to acquire a bank located outside the
state in which the operations of the holding company's banking subsidiaries are
principally conducted, unless such acquisition is specifically authorized by the
law of the state in which the bank to be acquired is located. However, under the
BHCA, as amended pursuant to the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") and as implemented by FRB regulations, a bank
holding company may acquire a savings association, as defined in FIRREA, in any
state without regard to whether the bank holding company can operate a bank in
that state.
The BHCA also prohibits a bank holding company, with certain
limited exceptions, from itself engaging in or acquiring direct or indirect
interests in or control of any company that is engaged in non-banking
activities. Certain exemptions are available with respect to subsidiaries
engaged in servicing or liquidating activities or companies acquired by a bank
holding company in satisfaction of debts previously contracted. Another
principal exception to this prohibition allows the acquisition, following an
application or notice process, of interests in companies whose activities are
found by the FRB, by order or regulation, to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. Some of the
activities that have been determined by regulation to be closely related to
banking are making or servicing loans, underwriting credit life insurance,
performing certain data processing services, acting as an investment or
financial advisor, and providing discount securities brokerage services. Other
activities approved by the FRB include consumer financial counseling, tax
planning and tax preparation, futures and options advisory services, check
guaranty services, collection agency services, credit bureau services, and
personal property appraisals. In determining whether a particular activity is a
proper incident to banking or managing or controlling banks, the FRB considers
whether its performance by an affiliate of the holding company can reasonably be
expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, which outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. The FRB is
also empowered to differentiate between activities commenced de nova and
activities through an acquisition of a going concern.
Under Federal law, the Company and its subsidiaries are
prohibited from extending credit, selling or leasing property, and furnishing
any service to any customer on the condition or requirement that the customer
(i) obtain any additional property, service or credit from the Company and its
subsidiaries; (ii) refrain from obtaining any property, service or credit from
any competitor of the Company or its subsidiaries; or (iii) furnish any
property, service or credit to the Company or its subsidiaries.
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As a bank holding company, the Company is also subject to
certain restrictions with respect to engaging in the business of issuing,
floating or underwriting securities, or the public sale or distribution of
securities. In addition, the Company is required to give the FRB prior written
notice of any purchase or redemption of its outstanding equity securities if the
gross consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the Company's consolidated net worth. The FRB
may disapprove such a purchase or redemption if it determines that the proposal
would violate any law, regulation, FRB order or directive, or any condition
imposed by the FRB.
The FRB has also adopted capital adequacy guidelines. See "--
Risk-Weighted Capital Requirements".
The FRB has been granted enforcement powers over bank holding
companies and nonbanking subsidiaries to forestall activities that represent
unsafe or unsound practices or constitute violations of law. These powers may be
exercised through the issuance of cease-and-desist orders or other actions. The
FRB is also empowered to assess civil penalties against companies or individuals
who violate the BHCA or orders or regulations thereunder in amounts up to $1
million for each day's violation, to order termination of nonbanking activities
of nonbanking subsidiaries of bank holding companies, and to order termination
of ownership and control of a nonbanking subsidiary by a bank holding company.
Certain violations may also result in criminal penalties. The FRB and the FDIC,
as appropriate, are authorized to exercise comparable authority, under the
Federal Deposit Insurance Act (the "FDI Act") and other statutes, with respect
to subsidiary banks.
As a bank holding company, the Company is required to file with
the FRB an annual report and such additional information as the FRB may require
pursuant to the BHCA. The FRB may also examine the Company and any or all of its
subsidiaries.
The FRB takes the position that a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe or unsound
manner. In addition, it is the FRB's position that in serving as a source of
strength to its subsidiary banks, a bank holding company should stand ready to
use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the FRB to be an unsafe and unsound banking
practice or a violation of the FRB regulations or both.
The status of the Company as a registered bank holding company
under the BHCA does not exempt it from certain Federal and state laws and
regulations applicable to corporations generally, including, without limitation,
certain provisions of the Federal securities laws. The Company is under the
jurisdiction of the Securities and Exchange Commission and of state securities
commissions for matters relating to offers and sales of its securities.
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STATE REGULATIONS
The Company is also subject to the Georgia Bank Holding Company
Act ("GBHCA") enacted by the State of Georgia and examination thereunder by the
Commissioner of the Department of Banking and Finance of the State of Georgia
(the "Georgia Commissioner"). The GBHCA provides that, without the prior
approval of the Georgia Commissioner, it is unlawful (i) for any bank holding
company to acquire direct or indirect ownership or control of more than 5% of
the voting shares of any bank, (ii) for any bank holding company or subsidiary
thereof, other than a bank, to acquire all or substantially all of the assets of
a bank, or (iii) for any bank holding company to merge or consolidate with any
other bank holding company. It is unlawful for any bank holding company to
acquire direct or indirect ownership or control of more than 5% of the voting
shares of any bank unless such bank has been in existence and continuously
operating as a bank for a period of five years or more prior to the date of the
application to the Georgia Commissioner seeking approval for such acquisition.
In addition, the acquisition of any additional banks would
require prior approval from both the FRB and the Georgia Commissioner. Under
Georgia law, a bank holding company is authorized to acquire ownership or
control of additional banks in Georgia, Alabama, District of Columbia, Florida,
Kentucky, Louisiana, Maryland, Mississippi, North Carolina, South Carolina,
Tennessee and Virginia (collectively, the "Southeastern Compact"), provided such
states enact reciprocal legislation. As of December 31, 1993, reciprocal
legislation was in effect in all of the aforementioned states. North Carolina
and Tennessee, however, have recently enacted legislation which will remove such
states from the Southeastern Compact and will permit national interstate
acquisitions by institutions located in North Carolina and Tennessee in states
which also permit national interstate acquisitions. On March 16, 1994, the
Georgia Legislature adopted a bill containing similar provisions. Assuming this
legislation (the "Georgia Interstate Banking Act") is signed into law by the
Governor of the State of Georgia, effective July 1, 1995, Georgia will no longer
be a member of the Southeastern Compact. Instead, (a) interstate acquisitions by
institutions located in Georgia will be permitted in states which also allow
national interstate acquistions, and (b) interstate acquisitions of institutions
located in Georgia will be permitted by institutions located in states which
also allow national interstate acquisitions; provided, however, that if the
board of directors of a Georgia bank or bank holding company adopts a resolution
to except such bank or bank holding company from being acquired pursuant to the
provisions of the Georgia Interstate Banking Act and properly files a certified
copy of such relolution with the Georgia Commissioner, such Georgia bank or bank
holding company may not be acquired by an institution located outside of the
State of Georgia. The Company does not presently intend to except the Company or
any of the Banks from the provisions of the Georgia Interstate Banking Act. It
is uncertain at this point whether Federal legislation will be required to allow
the withdrawal of these states from the Southeastern Compact to become
effective.
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SUBSIDIARY BANKS
Federal banking regulations applicable to all depository
financial institutions, among other things, (i) provide Federal bank regulatory
agencies with powers to prevent unsafe and unsound banking practices; (ii)
restrict preferential loans by banks to "insiders" of banks; (iii) require banks
to keep information on loans to major shareholders and executive officers; and
(iv) bar certain director and other interlocks between financial institutions.
The Company is an "affiliate" of its banking subsidiaries within
the meaning of the Federal Reserve Act, which imposes restrictions on loans to
the Company by the Banks, or investments by the Banks in securities of the
Company and on the use of such securities as collateral security for loans by
the Banks to any borrower. The Company is also subject to certain restrictions
with respect to engaging in the business of issuing, underwriting and
distributing securities.
Bank holding companies may be compelled by bank regulatory
authorities to invest additional capital in the event their banks experience
either significant loan losses or rapid growth of loans or deposits. In
addition, the Company may also be required to provide additional capital to any
additional banks it acquires as a condition to obtaining the approvals and
consents of regulatory authorities in connection with such acquisition.
The Banks are examined and regulated by the Department of
Banking and Finance of the State of Georgia (the "Department"). Pursuant to
regulations adopted by the Department, the Banks must each have the approval of
the Georgia Commissioner to pay cash dividends, unless at the time of such
payment (i) the total classified assets at the most recent examination of such
Bank do not exceed 80% of the equity capital as reflected by such examination;
(ii) the aggregate amount of dividends declared or anticipated to be declared in
the calendar year does not exceed 50% of the net profits, after taxes but before
dividends, for the previous calendar year; and (iii) the ratio of equity capital
to adjusted total assets is not less than 6%.
The Banks are members of the FDIC, which currently insures the
deposits of each member bank to a maximum of $100,000 per depositor. For this
protection, each Bank pays a semi-annual statutory assessment and is subject to
the rules and regulations of the FDIC. The FDIC has the authority to prevent the
continuance or development of unsound and unsafe banking practices. The FDIC is
also authorized to approve conversions, mergers, consolidations and assumption
of deposit liability transactions between insured banks and uninsured banks or
institutions, and to prevent capital or surplus diminution in such transactions
where the resulting, continuing or assumed bank is an insured nonmember state
bank.
The FDIC has issued regulations that require the subsidiary
banks to maintain minimum levels of capital. These regulations are similar to
those adopted by the FRB for bank holding companies described under "--Risk-
Weighted Capital Requirements."
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The appropriate bank regulatory authorities may impose sanctions
on any bank that does not operate in accordance with their regulations, policies
and directives. Proceedings may be instituted against any bank or any director,
officer, employee or other institution-affiliated party of the bank that is
believed by the appropriate supervisors to be engaged in unsafe and unsound
practices, including the violation of applicable laws and regulations. These
authorities are also empowered to assess civil penalties against companies or
individuals who violate certain Federal statutes, orders or regulations in
amounts up to $1 million for each day's violations. In addition, the FDIC has
the authority to terminate insurance of accounts, after notice and hearing, upon
a finding by the FDIC that the insured institution is or has engaged in any
unsafe or unsound practice that has not been corrected, or is in an unsafe and
unsound condition to continue operations, or has violated any applicable law,
regulation, rule or order of, or condition imposed by, the appropriate
supervisors.
The FRB requires all depository institutions, including the
subsidiary banks, to maintain reserves against their checking and transaction
accounts (primarily checking, NOW and Super NOW checking accounts). Because
reserves must generally be maintained in cash or in noninterest-bearing
accounts, the effect of the reserve requirements is to increase the subsidiary
banks' cost of funds.
FIRREA provides that an insured depository institution will be
liable for any loss incurred by the FDIC, or any loss to the FDIC reasonably
anticipated after August 8, 1989, in connection with the default of a commonly
controlled insured depository institution or in connection with assistance
provided to such an institution which is in danger of default. Banks that share
the same holding company are considered commonly controlled depository
institutions. The FDIC has the ability to exempt depository institutions from
this provision in certain circumstances.
RISK-WEIGHTED CAPITAL REQUIREMENTS
After December 31, 1992, banking organizations (including both
holding companies and banks) were required to meet a minimum ratio of Total
Capital to Total Risk-Weighted Assets of 8%, of which at least 4% must be in the
form of Tier 1 Capital.
The following table reflects the Company's and the Banks'
compliance with regulatory capital requirements at December 31, 1994 on a
consolidated basis:
<TABLE>
<CAPTION>
ACTUAL REQUIRED EXCESS
-------------------------- -------------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------------------------- -------------------------- ------------------------
(Dollars in Thousands)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital $ 29,808 10.26 % $ 11,619 4.00 % $ 18,189 6.26 %
Risk-based capital:
Core capital 29,808 15.26 7,814 4.00 21,994 11.26
Total capital 32,266 16.52 15,627 8.00 16,639 8.52
</TABLE>
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Each Bank also met its individual regulatory capital
requirements at December 31, 1994.
A banking organization's qualifying total capital consists of
two components: Tier 1 Capital (core capital) and Tier 2 Capital (supplementary
capital). Tier 1 Capital is an amount equal to the sum of: (i) common
shareholders' equity (including adjustments for any surplus or deficit); (ii)
qualifying noncumulative perpetual preferred stock (plus, for bank holding
companies, qualifying cumulative perpetual preferred stock in an amount up to
25% of Tier 1 Capital); and (iii) the minority interests in the equity accounts
of consolidated subsidiaries.
Intangible assets (other than goodwill) may be included in Tier
1 Capital for bank holding companies to an extent banking examiners consider
appropriate with the following factors, among others, taken into consideration:
(i) the reliability and predictability of any cash flows associated with the
asset and the degree of certainty that can be achieved in periodically
determining the asset's useful life and value; (ii) the existence of an active
and liquid market for the asset; and (iii) the feasibility of selling the asset
apart from the banking organization or from the bulk of its assets. At least 50%
of the banking organization's total regulatory capital must consist of Tier 1
Capital.
Tier 2 Capital is an amount equal to the sum of (i) the
allowance for possible loan and lease losses in an amount up to 1.25% of risk-
weighted assets, (ii) cumulative perpetual preferred stock and long-term
preferred stock (which for bank holding companies must have an original maturity
of 20 years or more) and related surplus; (iii) hybrid instruments (instruments
with characteristics of both debt and equity), perpetual debt and mandatory
convertible debt securities; and (iv) eligible term subordinated debt and
intermediate-term preferred stock with an original maturity of five years or
more, including related surplus, in an amount up to 50% of Tier 1 Capital. The
inclusion of the foregoing elements of Tier 2 Capital are subject to certain
further requirements and limitations of the Federal bank regulatory agencies.
Investments in unconsolidated banking and finance subsidiaries,
investments in securities subsidiaries and reciprocal holdings of capital
instruments must be deducted from capital. The Federal banking regulators may
require other deductions on a case-by-case basis.
Under the risk-weighted capital guidelines, balance sheet assets
and certain off-balance sheet items, such as standby letters of credit, are
assigned to one of four risk weight categories (0%, 20%, 50% or 100%) according
to the nature of the asset and its collateral or the identity of any obligor or
guarantor. For example, cash is assigned to the 0% risk category, while loans
secured by one-to-four family residences are assigned to the 50% risk category.
The aggregate amount of such assets and off-balance sheet items in each risk
category is adjusted by the risk weight assigned to that category to determine
weighted values, which are added together to determine the total risk-weighted
assets for the banking organization. Accordingly, an asset such as a commercial
loan, which is assigned to a 100% risk category, is included in risk-weighted
assets at its nominal face value, whereas a loan secured by a single-family home
mortgage is included at only 50% of its nominal face value. The applicable
ratios reflect capital, as determined, divided by risk-weighted assets, as
determined.
13
<PAGE>
The FRB recently amended its capital rules to clarify that (i)
supervisory goodwill arising from acquisitions in the future will not be
considered as capital for the risk-based capital purposes; (ii) FRB approval is
required before a bank holding company may redeem its perpetual preferred stock,
and (iii) bank holding companies selling residential mortgages with recourse
must hold capital against those assets and incorporate the sales in their risk-
based capital calculations, unless the maximum loss under the recourse
arrangement is less than the estimated loss on the assets and the company has
adequate reserves to cover the estimated loss. A phase-in period applies to
asset sales with recourse prior to October 12, 1990. The rule also provides that
claims on central banks which are not members of the Organization for Economic
Cooperation and Development (the "OECD") and claims on governments which are not
OECD members should be assigned to the 100% risk category.
POTENTIAL ENFORCEMENT ACTION FOR BANK HOLDING COMPANIES AND BANKS
Bank holding companies and banks may be subject to potential
enforcement actions by the FRB and/or the FDIC for unsafe or unsound practices
in conducting their businesses, or for violations of any law, rule or
regulation, any cease-and-desist or consent order, any condition imposed in
writing by the agency or any written agreement with the agency. Enforcement
actions may include the imposition of a conservator or receiver, cease-and-
desist orders and written agreements, the termination of insurance of deposits,
the imposition of civil money penalties and removal and prohibition orders
against institution-affiliated parties.
FIRREA significantly expanded the enforcement powers of bank
regulatory agencies, increased the penalties for violations of law and
substantially revised and codified the powers of receivers and conservators of
depository institutions. These powers include the power to obtain cease and
desist orders, the power to remove officers and directors, the power to approve
all new directors and senior executive officers of certain depository
institutions, and the power to assess criminal and civil money penalties for
violations of law or regulations, or conditions imposed by, or agreements with,
a regulatory agency. The receivership and conservatorship provisions of FIRREA
include a statutory claims procedure and provisions which expand and confirm the
powers of the FDIC to obtain a stay of pending litigation and to repudiate
certain contracts or leases it deems burdensome, in order to promote the orderly
administration of the institution's affairs and to set aside preferential
transfers. Under Section 914 of FIRREA and regulations adopted by the FRB and
FDIC, the FRB or FDIC, as appropriate, must be given, under certain
circumstances, 30 days notice of any changes in directors or senior executive
officers of the Company and the Banks, respectively. The FRB and FDIC may
disapprove such changes.
The Crime Control Act of 1990, enacted on November 29, 1990, also
contains a number of provisions which further enhance the enforcement powers of
the Federal banking regulators, expand the scope of persons potentially subject
to enforcement actions and increase the penalties for violations of law.
14
<PAGE>
RECENT LEGISLATIVE AND REGULATORY DEVELOPMENTS FOR BANK HOLDING COMPANIES AND
BANKS
INSURANCE PREMIUMS
The Federal Deposit Insurance Corporation Improvement Act
("FDICIA"), enacted on December 19, 1991, in connection with the
recapitalization of the Bank Insurance Fund ("BIF"), requires the FDIC to set
semi-annual assessment rates for BIF members at levels sufficient to increase
the BIF's reserve ratio to a designated level within a prescribed period of
time, not to exceed 15 years from the date that the FDIC promulgates the
applicable time schedule. In addition, FDICIA directed the FDIC to develop and
implement a system of risk-based premiums for Federal deposit insurance pursuant
to which the semi-annual rates will be assessed on the depository institution
based on the probability that the depository insurance fund will incur a loss
with respect to the institution.
In addition to authorizing an increase in the BIF insurance
assessment rates, FDICIA also authorizes one or more "special assessments"
necessary (i) to repay funds borrowed from the Secretary of the Treasury
pursuant to Section 14(a) of the FDI Act, (ii) to repay obligations issued to or
borrowed from the BIF and Savings Association Insurance Fund ("SAIF"), and (iii)
for any other purpose the FDIC deems necessary. A significant increase in the
assessment rate or an additional special assessment could have an adverse impact
on the financial condition of the Company and the Banks.
Each insured depository institution is also to be assigned to
one of the following "supervisory subgroups" --Subgroup A, B or C. Subgroup A
institutions are financially sound institutions with few minor weaknesses;
Subgroup B institutions are institutions that demonstrate weaknesses which, if
not corrected, could result in significant deterioration; and Subgroup C
institutions are institutions for which there is a substantial probability that
the FDIC will suffer a loss in connection with the institution unless effective
action is taken to correct the areas of weakness. Based on its capital and
supervisory subgroups, each BIF or SAIF member institution will be assigned an
annual FDIC assessment rate varying between .23% per annum (for well capitalized
Subgroup A institutions) and .31% per annum (for undercapitalized Subgroup C
institutions). Pursuant to these regulations, the deposit insurance rate for
each of the Banks (except Cairo Bank) has been established at .23% of domestic
deposits. The deposit insurance rate for Cairo Bank has been decreased from .29%
to .26%. Management believes that the continued improvement in Cairo Bank's
asset quality will result in a further decrease in the assessment rate.
15
<PAGE>
PROMPT CORRECTIVE ACTION
FDICIA substantially revised the bank regulatory provisions of
the FDI Act and several other Federal banking statutes. Among other things,
FDICIA requires Federal banking agencies to broaden the scope of regulatory
corrective action taken with respect to depository institutions that do not meet
minimum capital and related requirements and to take such actions promptly in
order to minimize losses to the FDIC. These provisions generally became
effective on December 19, 1992. In connection with FDICIA, Federal banking
agencies are required to establish capital measures (including both a leverage
measure and a risk-based capital measure) and to specify for each capital
measure the levels at which depository institutions will be considered well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized or critically undercapitalized.
Under FDICIA, a depository institution will be deemed to be well
capitalized if it significantly exceeds the minimum level required by regulation
for each relevant capital measure, adequately capitalized if it meets each such
measure, undercapitalized if it fails to meet any such measure, significantly
undercapitalized if it is significantly below any such measure and critically
undercapitalized if it fails to meet any critical capital level set forth in
regulations. The critical capital level must be a level of tangible equity that
is (i) not less than 2% of total assets and (ii) not more than 65% of the
minimum leverage ratio to be prescribed by regulation, provided that this second
requirement does not fall below 2% of total assets.
Pursuant to FDICIA, the Federal banking agencies, including the
FRB and the FDIC, have adopted regulations establishing relevant capital
measures and relevant capital levels. The relevant capital measures are the
total risk-based capital ratio, Tier 1 risk-based capital ratio and the leverage
ratio. Under the regulations, a bank is (i) well capitalized if it has a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of
8% or greater and a leverage ratio of 5% or greater and is not subject to any
order, written agreement, capital directive or prompt corrective action
directive to meet and maintain a specific capital level for any capital measure:
(ii) adequately capitalized if it has a total risk-based ratio of 8% or greater,
a Tier 1 risk-based capital ratio of 4% or greater, a leverage ratio of 4% or
greater (3% or greater if the bank is rated composite 1 in its most recent
report of examination and is not experiencing or anticipating significant
growth), and does not meet the definition of a well capitalized bank; (iii)
undercapitalized if it has a total risk-based capital ratio of less than 8%, a
Tier 1 risk-based capital ratio of less than 4% or a leverage ratio of less than
4% (or a leverage ratio of less than 3% if the institution is rated composite 1
in its most recent report of examination and is not experiencing or anticipating
significant growth); (iv) significantly undercapitalized if it has a total risk-
based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less
than 3% or a leverage ratio of less than 3%; and (v) critically undercapitalized
if the bank has a ratio of tangible equity to total assets that is equal to or
less than 2%.
16
<PAGE>
FDICIA authorizes the appropriate Federal banking agency to
treat a well capitalized, adequately capitalized or undercapitalized insured
depository institution as if it were in the next lower capital-based
classification if, after notice and an opportunity for a hearing, it is found
that such institution is in an unsafe or unsound condition or engaging in an
unsafe or unsound practice. Thus, an adequately capitalized institution can be
subjected to the restrictions applicable to undecapitalized institutions
described below (provided that a capital restoration plan cannot be required of
the institution), and an undercapitalized institution can be subjected to the
restrictions applicable to significantly undercapitalized institutions described
below. However, the regulations provide that a significantly undercapitalized
bank may not be reclassified as a critically undercapitalized bank.
An institution generally is required to submit an acceptable
capital restoration plan to its appropriate Federal banking agency within 45
days of the date the institution receives notice or is deemed to have notice
that it is undercapitalized, significantly undercapitalized or critically
undercapitalized. The plan must specify (i) the steps the institution will take
to become adequately capitalized, (ii) the capital levels to be attained each
year, (iii) how the institution will comply with any regulatory sanctions then
in effect against the institution, (iv) the types and levels of activities in
which the institution will engage, and (v) such other information as the banking
agency may require.
The banking agency may not accept a capital restoration plan
unless the agency determines, among other things, that the plan "is based on
realistic assumptions, and is likely to succeed in restoring the institution's
capital" and "would not appreciably increase the risk to which the institution
is exposed." In addition, before accepting a capital restoration plan of an
undercapitalized institution, the agency must determine that each company having
control of the institution has guaranteed that the institution will comply with
such a capital restoration plan. Liability with respect to this guaranty is
limited to the lesser of (i) 5% of the institution's assets at the time when it
becomes undercapitalized and (ii) the amount necessary to restore the relevant
capital measures of the institution that would enable the institution to be
classified as adequately capitalized.
Under FDICIA, an insured depository institution cannot make a
capital distribution (defined to include, among other things, dividends of cash
or other property, redemptions and other repurchases of stock, and any
transaction deemed by the appropriate Federal banking agency or the FDIC to be
in substance a distribution of capital), or pay management fees to any person
that controls the institution, if thereafter it would be undercapitalized. The
appropriate Federal banking agency, however, may (after consultation with the
FDIC) permit an insured depository institution to repurchase, redeem, retire or
otherwise acquire its shares if such action (i) is taken in connection with the
issuance of additional shares or obligations in at least an equivalent amount
and (ii) will reduce the institution's financial obligations or otherwise
improve its financial condition.
17
<PAGE>
An undercapitalized institution is also generally prohibited
from increasing its average total assets unless its capital restoration plan has
been accepted, the increase is consistent with that plan, and the institution's
ratio of tangible equity to assets increases during the calendar quarter at a
rate sufficient to enable the institution to become adequately capitalized
within a reasonable time. In addition, an undercapitalized institution is
generally prohibited from making any acquisitions, establishing any branches or
engaging in any new line of business except in accordance with an accepted
capital restoration plan or with the approval of the FDIC. Furthermore, the
appropriate Federal banking agency is given authority with respect to the
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
FDICIA provides that, with respect to an insured depository
institution that is significantly undecapitalized or is undercapitalized and
either fails to submit an acceptable capital restoration plan within the time
period allowed by regulation or fails in any material respect to implement a
capital restoration plan accepted by the appropriate Federal banking agency, the
appropriate Federal banking agency must require such institution to take one or
more of the following actions: (i) sell enough shares, including voting shares,
to become adequately capitalized; (ii) merge with (or be sold to) another
institution (or holding company), but only if grounds exist for appointing a
conservator or receiver; (iii) restrict certain transactions with banking
affiliates as if the "sister bank" exception to the requirements of Section 23A
of the Federal Reserve Act did not exist; (iv) otherwise restrict transactions
with bank or nonbank affiliates; (v) restrict interest rates that the
institution pays on deposits to "prevailing rates" in the institution's
"region", (vi) restrict asset growth or reduce total assets; (vii) alter, reduce
or terminate activities; (viii) hold a new election of directors; (ix) dismiss
any director or senior executive officer who held office for more than 180 days
immediately before the institution became undercapitalized, provided that in
requiring dismissal of a director or senior executive officer, the agency must
comply with certain procedural requirements, including the opportunity for an
appeal in which the director or officer will have the burden of proving that his
or her continued employment would materially strengthen the institution's
ability to become adequately capitalized and/or to correct an unsafe or unsound
condition or practice; (x) employ 'qualified" senior executive officers; (xi)
cease accepting deposits from correspondent depository institutions; (xii)
divest certain nondepository affiliates which pose a danger to the institution;
(xiii) be divested by a parent holding company; and (xiv) take any action which
the agency determines would better carry out the purposes of the prompt
corrective action provisions.
In addition to the foregoing sanctions, without the prior
written approval of the appropriate Federal banking agency, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such an officer. Furthermore,
the appropriate Federal banking agency cannot approve any such bonus in the case
of an undercapitalized institution that has failed to submit or implement an
acceptable capital restoration plan.
18
<PAGE>
Critically undercapitalized institutions are subject to the
restrictions imposed on significantly undercapitalized institutions. In
addition, FDICIA generally restricts payments of subordinated debt and requires
the appropriate Federal banking agency within certain time periods to appoint a
receiver or a conservator for such institutions unless certain statutory
criteria are met. The FDIC is also required, by regulation or order, to
"restrict the activities" of such critically undercapitalized institutions.
Based on regulatory guidelines, all of the Banks are well
capitalized.
BROKERED DEPOSITS
FDICIA amended the FDI Act to provide generally that an insured
depository institution that is not well capitalized may not accept, renew or
roll over brokered deposits. The FDIC may waive this restriction under certain
circumstances if an institution is adequately capitalized or if the institution
is under FDIC conservatorship. However, FDICIA and implementing regulations
limit the interest rates that may be paid by such institutions on brokered
deposits. In addition, the FDIC in general may not provide "pass-through"
deposit insurance on certain employee benefit accounts accepted by a bank, which
at the time such accounts are accepted, may not receive brokered deposits. None
of the Banks accept brokered deposits at this time.
SAFETY AND SOUNDNESS STANDARDS
Pursuant to FDICIA, the FDIC has recently adopted safety and
soundness regulations for depository institutions and depository institution
holding companies relating to operations and management, asset quality,
earnings, stock valuation and compensation. A holding company or institution
that fails to comply with such regulations will be required to submit a plan
designed to achieve such compliance. If no such plan is submitted or there is a
failure to implement such a plan, the depository institution or holding company
would become subject to additional regulatory action or enforcement proceedings.
MISCELLANEOUS
FDICIA also contains a variety of other provisions that may
affect the operations of the Company and the Banks, including certain reporting
requirements, revised regulatory standards for real estate lending, "truth in
savings" provisions and the requirement that a depository institution give 90
days prior notice to customers and regulatory authorities before closing any
branch.
19
<PAGE>
RECENTLY ADOPTED REGULATIONS
The FDIC adopted revisions effective March 1, 1993, for state
chartered nonmember banks to its risk-weighted capital guidelines that would
change the manner in which intangible assets may be included in (i.e., not
deducted from) the Tier 1 Capital calculation for risk-weighted and leverage
capital purposes. Under the proposal, purchased mortgage servicing rights
("PMSRs"), which represent anticipated fee revenue to be earned by collecting
principal and interest payments on mortgage loans originated by another entity
and distributing the proceeds to the mortgagee, and purchased credit-card
relationships ("PCCRs"), which represent interest and fees anticipated in
connection with the servicing of credit card arrangements originated by, and
purchased from, another entity, are to be included in Tier 1 Capital to the
extent that, in the aggregate, they do not exceed 50% of Tier 1 Capital and to
the further extent that PCCRs alone do not exceed 25% of Tier 1 Capital. The FRB
has recently adopted regulations for bank holding companies. Such percentages
are to be calculated after deducting goodwill and nonqualifying identifiable
intangible assets from Tier 1 Capital. Other identifiable intangible assets,
including core deposit intangibles ("CDIs"), which represent the value of
relatively low-cost funding anticipated from core depositor relationships
acquired from another entity, are proposed to be excluded from Tier 1 Capital.
The FDIC adopted these revisions because it considers identifiable intangible
assets, with the qualified exception of PMSRs and PCCRs, to be inherently
unreliable and unpredictable, not traded in an active and liquid market, not
salable apart from the financial institution itself or from the bulk of its
assets and, particularly in the case of CDIs, analogous to goodwill.
Under FIRREA, the FDIC is authorized to prescribe regulations to
prevent depository institutions from contracting for goods, products or services
in a manner that would adversely affect the safety or soundness of the
institution. A proposed regulation of the FDIC would prohibit certain "adverse
contracts" with unrelated third parties and would establish a rebuttable
presumption that certain contracts with related parties, including contracts for
loan processing or servicing, bookkeeping and data processing and management
services, are adverse.
It is uncertain which of the proposed regulations, if any, will
become final or, if so, in what form. In addition, the impact of any such
regulations, if adopted, cannot be predicted at this time.
PROPOSED LEGISLATION FOR BANK HOLDING COMPANIES AND BANKS
Certain proposals affecting the banking industry have been
discussed from time to time. Such proposals include: limitations on investments
that an institution may make with insured funds; regulation of all insured
depository institutions by a single regulator; limitations on the number of
accounts protected by the Federal deposit insurance funds; reduction of the
$100,000 coverage limit on deposits; changes in the nature, timing and extent of
the Federal government regulations of student loans and imposition of
responsibility on bank holding companies for losses of insured affiliates and
subsidiaries. It is uncertain which, if any, of the above proposals may become
law and what effect, if any, they would have on the Company and the Banks.
20
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information with respect
to the executive officers of the Company.
<TABLE>
<CAPTION>
NAME, AGE AND TERM POSITION WITH THE PRINCIPAL OCCUPATION FOR THE LAST FIVE
AS OFFICER REGISTRANT YEARS AND OTHER DIRECTORSHIPS
----------------------------- --------------------- -----------------------------------------
<S> <C> <C>
Eugene M. Vereen, Jr.; Chairman Chairmain of the Board of ABC
74; Officer since 1981 Bancorp since 1981 and Chief
Executive Officer from 1981 to 1994.
Mr. Vereen is also a Director of each
of the Company's subsidiary banks.
Mr. Vereen is President of M.I.A. Co.,
a real estate holding and investment
company and previously served
as Senior President of American Bank.
He now serves as President Emeritus
of American Bank.
Kenneth J. Hunnicutt; President, Chief Executive Officer and of ABC
58; Officer since 1981 Chief Executive Officer Bancorp since 1994 and President
Director sicne 1981. Mr. Hunnicutt served as
Senior President of American Bank
from 1989 to 1991 and as President
of American Bank from 1975 to 1989
and currently serves as a Director of
each of the Company's subsidiary
banks. Mr. Hunnicutt is the Chairman
of the Board of Thomas Bank and Cairo
Bank.
W. Edwin Lane, Jr; Executive Vice Executive Vice President and Chief
41: Officer since President and Chief Financial Officer of ABC Bancorp since
January 1, 1995 Financial Officer January 1, 1995. Mr. Lane served as
Controller of First Liberty Bank,
Macon, Georgia from August 1992 to
December 1994. Mr. Lane was
associated with Mauldin & Jenkins,
Certified Public Accountants, from
1985 to 1992, where he served as an
audit manager from 1989 to 1992.
</TABLE>
Officers serve at the discretion of the Board of Directors.
21
<PAGE>
ITEM 2. PROPERTIES
The principal properties of the Company consist of the
properties of the Banks. For a description of the properties of the Banks, see
"Item 1 - Business of the Company and Subsidiary Banks - Properties" included
elsewhere in this Annual Report.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiary banks is a party
to, nor is any of their property the subject of, any material pending legal
proceedings, other than ordinary routine proceedings incidental to the business
of the Banks, nor to the knowledge of the management of the Company are any such
proceedings contemplated or threatened against it or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of the Company's
shareholders during the fourth quarter of 1994.
22
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) In May 1994, the Company sold 747,500 shares of the Company's common
stock, par value $1.00 per share at a price of $12.25 per share pursuant
to a registered public offering (the "Offering"). Simultaneous with the
Offering, the common stock was approved for listing on the Nasdaq
National Market System ("Nasdaq - NMS") under the symbol ABCB.
Prior to the Offering, quotations for the common stock were not reported
on any market, and there was no established public trading market for
the common stock.
The following table sets forth: (a) the high and low bid prices for the
common stock as quoted on Nasdaq-NMS during the periods since the common
stock was listed; and (b) the amount of quarterly dividends declared on
the common stock during the periods indicated.
<TABLE>
<CAPTION>
Cash
Calendar Period Bid Prices Dividends
---------------------------- ----------------------------
1994 Low High Declared
---------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
Second quarter $ 12.25 $ 13.75 $ 0.095
Third quarter 12.75 14.00 0.095
Fourth quarter 12.00 13.75 0.095
</TABLE>
(b) As of March 1, 1995, there were approximately 800 holders of record of
the Common Stock.
(c) The Company paid an annual dividend on its Common Stock of $.38 per
share for fiscal years 1994 and 1993.
23
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
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 the Company and the Banks to meet
those needs. The Company and the Banks seek to meet liquidity requirements
primarily through management of short-term investments (principally Federal
funds sold) and monthly amortizing loans. Another source of liquidity is the
repayment of maturing single payment loans. Also, the Banks maintain
relationships with correspondent banks which could provide funds to them on
short notice, if needed.
The liquidity and capital resources of the Company and the Banks
are monitored on a periodic basis by state and Federal regulatory authorities.
As determined under guidelines established by these regulatory authorities, the
Banks' liquidity ratios at December 31, 1994 were considered satisfactory. At
that date, the Banks' short-term investments were adequate to cover any
reasonably anticipated immediate need for funds. The Company and the Banks were
aware of no events or trends likely to result in a material change in their
liquidity. At December 31, 1994, the Company's and the Banks' capital asset
ratios were considered adequate based on guidelines established by regulatory
authorities. During 1994, the Company increased its capital by $8,324,000,
representing net proceeds after deducting stock issue costs from a public
offering of its common stock. It also increased its capital by retaining net
earnings of $ 2,216,000 after payment of dividends. After recording a reduction
in capital of $49,000 for unrealized losses on securities, net of taxes, total
capital increased during 1994 by $10,491,000. At December 31, 1994, total
capital of the Company amounted to $30,450,000. At December 31, 1994, there were
no outstanding commitments for any major capital expenditures.
RESULTS OF OPERATIONS
The Company's results of operations are determined by its
ability to effectively manage interest income and expense, to minimize loan and
investment losses, to generate noninterest income and to control noninterest
expense. Since interest rates are determined by market forces and economic
conditions beyond the control of the Company, the ability to generate net
interest income is dependent upon the Banks' ability to obtain an adequate
spread between the rate earned on interest-earning assets and the rate paid on
interest-bearing liabilities. Thus, the key performance measure for net interest
income is the interest margin or net yield, which is taxable-equivalent net
interest income divided by average earning assets.
24
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
The primary component of concolidated earnings is net interest
income, or the difference between interest income on interest-earning assets and
interest paid on interest-bearing liabilities. The net interest margin is net
interest income expressed as a percentage of average interest-earning assets.
Interest-earning assets consist of loans, investment securities and Federal
funds sold. Interest-bearing liabilities consist of deposits, of which
approximately 16% are noninterest-bearing. A portion of interest income is
earned on tax-exempt investments, such as state and municipal bonds. In an
effort to state this tax-exempt income and its resultant yields on a basis
comparable to all other taxable investments, an adjustment is made to analyze
this income on a taxable-equivalent basis.
The net interest margin increased by 5.24% to 5.62% in 1994 as
compared to 5.34% in 1993. This increase in net interest margin was achieved by
an increase of 10 basis points on average yield earned on interest-earning
assets accompanied by a decrease of 6 basis points in average rate paid on
interest-bearing liabilities. Net interest income on a taxable-equivalent basis
was $13,814,000 in 1994 as compared to $12,273,000 in 1993, representing an
increase of 12.56 %. Net interest income on a taxable-equivalent basis was
$12,273,000 in 1993 as compared to $9,325,000 in 1992, representing an increase
of 31.61%. However, the net interest margin decreased by 2.73% to 5.34% in 1993
from 5.49% in 1992 because average interest-earning assets increased by 35.49%
in 1993 as compared to 1992.
Average interest-earning assets increased by $15,912,000 or
6.92% to $245,869,000 in 1994 from $229,957,000 in 1993. Average loans increased
by $20,706,000; average investments increased by $ 3,744,000; and average
Federal funds sold decreased by $8,538,000. The increase in average interest-
earning assets was funded by an increase in average deposits of $9,424,000 or
4.08% to $240,177,000 in 1994 from $230,753,000 in 1993. By comparison, average
interest-earning assets increased by $60,231,000 or 35.49% to $229,957,000 in
1993 from $169,726,000 in 1992. During 1993, average deposits increased by
$62,669,000 or 37.28%, to $230,753,000 from $168,084,000 in 1992. Approximately
16% of the average deposits were noninterest-bearing deposits in 1994 as
compared to 15% noninterest-bearing deposits in 1993.
The allowance for loan losses represents a reserve for potential
losses in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with a
particular emphasis on nonaccruing, past due and other loans that management
believes require attention.
25
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
The provision for loan losses is a charge to earnings in the
current period to replenish the allowance and maintain it at a level management
has determined to be adequate. The provision for loan losses charged to earnings
amounted to $638,000 in 1994, $1,191,000 in 1993, and $1,129,000 in 1992. The
decrease in the provision for loan losses in 1994 of $553,000, or 46.45%, as
compared with 1993 is attributable to a decrease in net charge-offs in 1994 of
$1,181,000, or 72.32%, as compared to 1993. Net charge-offs represented 70.85%
of the provision for loan losses in 1994 as compared to 137% in 1993. The
decrease in loan charge-offs in 1994 resulted from an improvement in the quality
of the collateral held as security on loans and the ability of the creditors to
service their debt. The loan charge-offs for 1994 represented .25% of average
loans outstanding during the year as compared to 1.02% for 1993. At December 31,
1994, the allowance for loan losses was 1.96% of total loans outstanding as
compared to an allowance for loan losses of 2.21% of total loans outstanding at
December 31, 1993. The determination of the allowance rests upon management's
judgment about factors affecting loan quality and assumptions about the local
and national economy. Management considers the year-end allowance for loan
losses adequate to cover potential losses in the loan portfolio.
Following is a comparison of noninterest income for 1994, 1993
and 1992.
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Service charges on deposit accounts $2,456,000 $2,299,000 $1,729,000
Other service charges, commissions and fees 224,000 230,000 153,000
Other income 345,000 338,000 212,000
------------ ------------ ------------
$3,025,000 $2,867,000 $2,094,000
============ ============ ============
</TABLE>
The most significant increase in noninterest income was an
increase in service charges on deposit accounts of $157,000 in 1994 over 1993,
representing an increase of 6.83%. This increase i n service charges was
achieved by an increase in average deposits of $9,424,000 during 1994 as
compared to 1993. Of the total increase in noninterest income of $773,000 in
1993 over 1992, $545,000 or 70.50% was attributable to Cairo Bank which was
acquired on October 1, 1992 and accounted for as a purchase. Under purchase
accounting, only three months of operations of Cairo Bank was included in income
in 1992.
26
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Following is an analysis of noninterest expense for 1994, 1993
and 1992.
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C>
Salaries and employee benefits $ 5,711,000 $ 5,238,000 $ 3,886,000
Occupancy and equipment expense 1,754,000 1,567,000 1,143,000
Deposit insurance premiums 559,000 551,000 383,000
Data processing fees 448,000 290,000 306,000
Other expense 3,075,000 2,889,000 2,312,000
------------ ------------ ------------
$11,547,000 $10,535,000 $ 8,030,000
============ ============ ============
</TABLE>
Salaries and employee benefits increased $473,000, or 9.03% in
1994 over 1993. Salaries increased $266,000; bonuses increased $154,000; and
employee benefits increased $53,000. The increase in bonuses was attributable to
the significant increase in income before income taxes of $808,000 in 1994 as
compared to 1993. The most significant increases in noninterest expense in 1993
over 1992 were an increase in salaries and benefits of $1,352,000, of which
Cairo Bank accounted for $1,035,000 or 76%, and an increase in occupancy and
equipment expense of $424,000, of which Cairo Bank accounted for $344,000 or
81%. Deposit insurance premiums increased in 1993 over 1992 by $168,000, of
which $150,000 was attributable to Cairo Bank. After eliminating the increases
in other noninterest expense attributable to Cairo Bank, all other noninterest
expenses increased by approximately 7% in 1993 over 1992.
Average total assets increased $11,843,000 or 4.61% to
$268,490,000 in 1994 as compared to $256,647,000 in 1993. The increase in
average total assets was accompanied by an increase in average deposits of
$9,424,000 or 4.08%. The increase in average assets of $67,265,000 or 35.52% to
$256,647,000 in 1993 as compared to $189,382,000 in 1992 was attributable
primarily to the acquisition of Cairo Bank on October 1, 1992 which accounted
for an increase in average assets in 1993 over 1992 of $56,384,000 or 19.30%.
27
<PAGE>
Following is a condensed summary of the increase in net income
in 1994 as compared to 1993.
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
1994 1993 IN NET
INCOME
--------------- ---------------- ----------------
<S> <C> <C> <C>
Net interest income $ 13,500,000 $ 11,965,000 $ 1,535,000
Provision for loan losses 638,000 1,191,000 553,000
Other income 3,025,000 2,867,000 158,000
Other expense 11,547,000 10,535,000 (1,012,000)
-------------- ---------------- ----------------
Income before income taxes and
cumulative effect of change
in accounting 4,340,000 3,106,000 1,234,000
Applicable income taxes 1,240,000 814,000 (426,000)
--------------- --------------- ---------------
Income before cumulative effect of
change in accounting 3,100,000 2,292,000 808,000
Cumulative effect of change in method of
accounting for income taxes - 346,000 (346,000)
--------------- ---------------- ---------------
Net income $ 3,100,000 $ 2,638,000 $ 462,000
=============== ================ ================
</TABLE>
28
<PAGE>
SELECTED STATISTICAL INFORMATION OF ABC BANCORP
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.
AVERAGE BALANCES AND NET INCOME ANALYSIS
The following tables set forth the amount of the Company's
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 34% Federal tax
rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------
1994 1993 1992
----------------------------------- -------------------------------- --------------------------------
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)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned
interest $ 180,682 $ 18,017 9.97 % $ 159,976 $ 16,278 10.18 % $ 118,313 $ 12,551 10.61 %
Investment securities:
Taxable 35,099 1,928 5.49 32,851 1,997 6.08 20,797 1,766 8.49
Nontaxable 10,761 924 8.59 9,265 905 9.77 10,683 1,026 9.60
Federal funds sold 19,327 773 4.00 27,865 825 2.96 19,933 674 3.38
---------- ---------- --------- ----------- ------- --------- ---------- -------- ------
Total interest-earning
assets 245,869 21,642 8.80 229,957 20,005 8.70 169,726 16,017 9.44
---------- --------- ----------- -------- ---------- ---------
Noninterest-earning assets:
Cash 16,132 16,035 3,074
Allowance for loan losses (3,951) (2,950) (2,061)
Other assets 10,440 13,605 18,643
----------- ----------- ----------
Total noninterest-earning
assets 22,621 26,690 19,656
----------- ----------- ----------
Total assets $ 268,490 $ 256,647 $ 189,382
=========== =========== ==========
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1994 1993 1992
--------------------------------------- -------------------------------------- ---------------------
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)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest-bearing
demand deposits $ 88,482 $ 2,539 2.87 % $ 87,867 $ 2,686 3.06 % $ 61,523 $ 2,024 3.29 %
Time deposits 112,730 5,064 4.49 108,288 4,808 4.44 85,886 4,577 5.33
Federal funds purchased
and repurchase
agreements 2,557 68 2.66 - - - - - -
Debt 1,931 157 8.13 3,654 238 6.51 1,026 91 8.87
--------- -------- --------- ----------- ------- --------- ---------- ------- -----------
Total interest-bearing
liabilities 205,700 7,828 3.81 199,809 7,732 3.87 148,435 6,692 4.51
--------- -------- ---------- --------- --------- -------
Noninterest-bearing liabilities
and stockholders' equity:
Demand deposits 38,965 34,598 20,675
Other liabilities 1,659 2,915 1,658
Stockholders' equity 22,166 19,325 18,614
------------- ------------- --------------
Total noninterest-bearing
liabilities and
stockholders' equity 62,790 56,838 40,947
------------ ------------- ---------------
Total liabilities and
stockholders' equity $ 268,490 $ 256,647 $ 189,382
============ ============= ===============
Interest rate spread 4.99 % 4.83 % 4.93 %
======== ======== ========
Net interest income $ 13,814 $ 12,273 $ 9,325
========== ========== =========
Net interest margin 5.62 % 5.34 % 5.49 %
========= ========= ========
</TABLE>
30
<PAGE>
RATE AND VOLUME ANALYSIS
The following table reflects the changes in net interest income
resulting from changes in interest rates and from asset and liability volume.
Federally tax-exempt interest is presented on a taxable-equivalent basis
assuming a 34% Federal tax rate. The change in interest attributable to rate has
been determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to the change in average
balances outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1994 VS. 1993 1993 VS. 1992
-------------------------------------- --------------------------------
INCREASE CHANGES DUE TO INCREASE CHANGES DUE TO
--------------------- ------------------------
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
---------- ----------- --------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans $ 1,739 $ (368) $ 2,107 $ 3,727 $ (693) $ 4,420
Interest on securities:
Taxable (69) (206) 137 231 (793) 1,024
Nontaxable 19 (127) 146 (121) 15 (136)
Interest on deposits in banks (52) 201 (253) 151 (117) 268
--------- ---------- ----------- --------- --------- ----------
Total interest income 1,637 (500) 2,137 3,988 (1,588) 5,576
--------- ---------- ----------- --------- -------- ----------
Expense from interest-bearing liabilities:
Interest on savings and interest-
bearing demand deposits (147) (166) 19 662 (205) 867
Interest on time deposits 256 59 197 231 (963) 1,194
Interest on short-term deposits 68 - 68 - - -
Interest on debt (81) 31 (112) 147 (86) 233
--------- ------------- ---------- -------- -------- ---------
Total interest expense 96 (76) 172 1,040 (1,254) 2,294
--------- ------------ ---------- -------- --------- ---------
Net interest income $ 1,541 $ (424) $ 1,965 $ 2,948 $ (334) $ 3,282
========= ============ ========== ======== ========= =========
</TABLE>
31
<PAGE>
ASSET/LIABILITY MANAGEMENT
A principal objective of the Company's asset/liability
management strategy is to minimize its exposure to changes in interest rates by
matching the maturity and repricing horizons of interest-earning assets and
interest-bearing liabilities. This strategy is overseen in part through the
direction of the Asset and Liability Committee (the "ALCO Committee") of each
Bank, which establishes policies and monitors results to control interest rate
sensitivity.
Management's strategy is to maintain a balanced interest rate
risk position to protect its net interest margin from market fluctuations. To
this end, the ALCO Committee of each Bank reviews, on a monthly basis, the
maturity and repricing of assets and liabilities. The Company has adopted a goal
of achieving and maintaining a one-year gap ratio between rate sensitive assets
to rate sensitive liabilities of 80% to 120%. Management believes that the type
and amount of the Company's interest rate-sensitive liabilities (a significant
portion of which are composed of money market, NOW and savings accounts whose
yields, to a certain extent, are subject to the discretion of management) may
reduce the potential impact that a rise in interest rates might have on the
Company's net interest income.
As of December 31, 1994, the Company's cumulative one-year
interest rate sensitivity gap ratio was 130%. This indicates that the Company's
interest-earning assets will reprice during this period at a rate slightly
faster than the Company's interest-bearing liabilities. Certain assumptions
regarding the interest sensitivity of these assets and liabilities have been
incorporated into this analysis. The Company believes that it has positioned
itself to maintain its net interest margin in the event of changes in interest
rates. There can be no assurance, however, that this strategy will be
successful.
32
<PAGE>
The following table sets forth the distribution of the repricing
of the Company's earning assets and interest-bearing liabilities as of December
31, 1994, the interest rate sensitivity gap (i.e., interest rate sensitive
assets less interest rate sensitive liabilities), the cumulative interest rate
sensitivity gap ratio (i.e., interest rate sensitive assets divided by interest
rate sensitivity liabilities) and the cumulative sensitivity gap ratio. The
table also sets forth the time periods in which earning assets and liabilities
will mature or may reprice in accordance with their contractual terms. However,
the table does not necessarily indicate the impact of general interest rate
movements on the net interest margin since the repricing of various categories
of assets and liabilities is subject to competitive pressures and the needs of
the Banks' customers. In addition, various assets and liabilities indicated as
repricing within the same period may in fact reprice at different times within
such period and at different rates.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
--------------------------------------------------------------
MATURING OR REPRICING WITHIN
--------------------------------------------------------------
ZERO TO THREE ONE
THREE MONTHS TO TO OVER
MONTHS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
---------- ------------ ------------ ------------ ---------
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Federal fund sold $ 21,902 $ - $ - $ - $ 21,902
Investment securities 4,110 9,866 25,755 6,774 46,505
Loans 86,081 19,830 70,660 15,553 192,124
----------- ----------- ----------- ---------- ---------
112,093 29,696 96,415 22,327 260,531
----------- ----------- ----------- ---------- ----------
Interest-bearing liabilities:
Interest-bearing demand deposits (1) - 17,417 45,845 - 63,262
Savings - - 23,644 - 23,644
Certificates less than $100,000 17,829 50,518 25,875 - 94,222
Certificates, $100,000 and over 3,734 17,136 6,421 - 27,291
Securities sold under agreements to repurchase 2,338 - - - 2,338
----------- ----------- ------------ ----------- ---------
23,901 85,071 101,785 - 210,757
----------- ----------- ------------ ----------- ---------
Interest rate sensitivity gap $ 88,192 $ (55,375) $ (5,370) $ 22,327 $ 49,774
=========== ============ ========== ========== =========
Cumulative interest rate sensitivity gap $ 88,192 $ 32,817 $ 27,447 $ 49,774
=========== ============ ========== ==========
Interest rate sensitivity gap ratio 4.69 0.35 0.95 N/A
=========== ============ ========= ==========
Cumulative interest rate sensitivity gap ratio 4.69 1.30 1.13 1.24
=========== ============ ========= ==========
</TABLE>
(1) The Company has found that NOW checking accounts and savings deposits
are generally not sensitive to changes in interest rates and, therefore,
it has placed such liabilities in the "One to Five Years" category. It
has also found that the money-market checking deposits reprice between
three months to one year, on the average.
33
<PAGE>
INVESTMENT PORTFOLIO
The Company manages the mix of asset and liability maturities in an
effort to control the effects of changes in the general level of interest rates
on net interest income. See "--Asset/Liability Management." Except for its
effect on the general level of interest rates, inflation does not have a
material impact on the Company due to the rate variability and short-term
maturities of its earning assets. In particular, approximately 55% of the loan
portfolio is comprised of loans which mature or reprice within one year or less.
Mortgage loans, primarily with five to fifteen year maturities, are also made on
a variable rate basis with rates being adjusted every one to five years.
Additionally, 30% of the investment portfolio matures within one year.
TYPES OF INVESTMENTS
The carrying value of investments in securities at the dates indicated
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
------------ ------------
(DOLLARS IN THOUSANDS)
--------------------------
<S> <C> <C>
U. S. Treasury and government agencies $ 33,809 $ 32,033
State and political subdivisions 9,819 11,004
Mortgage-backed securities 2,617 2,600
Other securities 260 300
---------- ----------
$ 46,505 $ 45,937
========== ==========
</TABLE>
34
<PAGE>
MATURITIES
The amounts of investments in securities in each category as of
December 31, 1994 are shown in the following table according to contractual
maturity classifications (1) one year or less, (2) after one year through five
years, (3) after five years through ten years, and (4) after ten years.
<TABLE>
<CAPTION>
U. S. TREASURY
AND OTHER U. S.
GOVERNMENT AGENCIES STATE AND
AND CORPORATIONS POLITICAL SUBDIVISIONS
YIELD YIELD
AMOUNT (1) AMOUNT (1) (2)
---------- --------- ---------- ----------
(DOLLARS IN THOUSANDS)
------------------------------------------------
<S> <C> <C> <C> <C>
MATURITY:
One year or less $ 13,271 4.61 % $ 575 9.71 %
After one year through five years 23,200 5.88 2,482 7.59
After five years through ten years 215 9.54 4,934 7.74
After ten years 1,828 8.84
------------ --------- ---------- --------
$ 36,686 5.45 % $ 9,819 8.02 %
============ ========= ========== ========
</TABLE>
(1) Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the acquisition price of each security in that
range.
(2) Yields on securities of state and political subdivisions are stated on a
taxable-equivalent basis, using a tax rate of 34%.
35
<PAGE>
LOAN PORTFOLIO
TYPES OF LOANS
Management believes that the Company's loan portfolio is
adequately diversified. The loan portfolio contains no foreign or energy-related
loans or significant concentrations in any one industry, with the exception of
agricultural-related loans, which constituted approximately 27% of the Company's
loan portfolio as of December 31, 1994. The amount of loans outstanding at the
indicated dates is shown in the following table according to type of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ----------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and financial $ 23,531 $ 20,849 $ 19,650 $ 11,379 $ 9,556
Agricultural 17,079 9,767 10,789 8,109 6,696
Real estate - construction 1,828 3,387 2,130 1,421 1,920
Real estate - mortgage, farmland 34,887 29,489 24,922 14,129 11,003
Real estate - mortgage,
commercial 35,242 27,402 22,284 12,506 7,493
Real estate -mortgage, residential 44,064 41,902 43,500 31,343 28,608
Consumer instalment loans 34,213 27,231 25,979 19,007 22,589
Other 1,280 1,720 1,691 2,754 1,679
---------- ----------- ---------- ---------- ----------
192,124 161,747 150,945 100,648 89,544
Less reserve for possible loan
losses 3,757 3,571 4,013 1,257 1,046
---------- ----------- ---------- ---------- ----------
Loans, net $ 188,367 $ 158,176 $ 146,932 $ 99,391 $ 88,498
========== ========== ========== ========== ==========
</TABLE>
MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
Total loans as of December 31, 1994 are shown in the following
table according to maturity or repricing opportunities (1) one year or less, (2)
after one year through five years, and (3) after five years.
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
----------
MATURITY OR REPRICING WITHIN:
<S> <C>
One year or less $ 105,911
After one year through five years 70,660
After five years 15,553
----------
$ 192,124
==========
</TABLE>
36
<PAGE>
The following table summarizes loans at December 31, 1994 with
the due dates after one year which (1) have predetermined interest rates and (2)
have floating or adjustable interest rates.
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
Predetermined interest rates $ 86,213
Floating or adjustable interest rates $ 86,213
</TABLE>
Records were not available to present the above information in
each category listed in the first paragraph above and could not be reconstructed
without undue burden.
NONPERFORMING LOANS
The following table presents, at the dates indicated, the
aggregate of nonperforming loans for the categories indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis $ 3,460 $ 3,119 $ 5,605 $ 511 $ 396
Instalment loans and term loans
contractually past due ninety
days or more as to interest or
principal payments and still
accruing 103 316 595 563 754
Loans, the terms of which have
been renegotiated to provide a
reduction or deferral of interest
or principal because of
deterioration in the financial
position of the borrower 358 - - - -
Loans now current about which
there are serious doubts as to
the ability of the borrower
to comply with present loan
repayment terms - - - - -
</TABLE>
37
<PAGE>
In the opinion of management, any loans classified by regulatory
authorities as doubtful, substandard or special mention that have not been
disclosed above do not (i) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity or capital resources, or (ii) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms. Any loans classified by regulatory authorities as loss have
been charged off.
COMMITMENTS AND LINES OF CREDIT
In the ordinary course of business, the Banks have granted
commitments to extend credit to approved customers. Generally, these commitments
to extend credit have been granted on a temporary basis for seasonal or
inventory requirements and have been approved by the Banks' Board of Directors.
The Banks have also granted commitments to approved customers for standby
letters of credit. These commitments are recorded in the financial statements
when funds are disbursed or the financial instruments become payable. The Banks
use the same credit policies for these off balance sheet commitments as they do
for financial instruments that are recorded in the consolidated financial
statements. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitment amounts expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
Following is a summary of the commitments outstanding at
December 31, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(DOLLARS IN THOUSANDS)
-----------------------
<S> <C> <C>
Commitments to extend credit $ 22,344 $ 20,831
Standby letters of credit 590 1,081
---------- ----------
$ 22,934 $ 21,912
========== ==========
</TABLE>
38
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is created by direct
charges to operations. Losses on loans are charged against the allowance in the
period in which such loans, in management's opinion, become uncollectible.
Recoveries during the period are credited to this allowance. The factors that
influence management's judgment in determining the amount charged to operating
expense are past loan experience, composition of the loan portfolio, evaluation
of possible future losses, current economic conditions and other relevant
factors. The Company's allowance for loan losses was approximately $3,757,000 at
December 31, 1994, representing 1.96% of year end total loans outstanding,
compared with $3,571,000 at December 31, 1993, which represented 2.21% of year
end total loans outstanding. The allowance for loan losses is reviewed quarterly
based on management's evaluation of current risk characteristics of the loan
portfolio, as well as the impact of prevailing and expected economic business
conditions. Management considers the allowance for loan losses adequate to cover
possible loan losses on the loans outstanding.
Management has not allocated the Company's allowance for loan
losses to specific categories of loans. Based on management's best estimate,
approximately 30% of the allowance should be allocated to real estate loans, 40%
to commercial, financial and agricultural loans and 30% to consumer/instalment
loans as of December 31, 1994.
The following table presents an analysis of the Company's loan
loss experience for the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1994 1993 1992 1991 1990
========= ========= ========= ========= =========
(DOLLARS IN THOUSANDS)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average balance of loans outstanding $180,682 $159,976 $118,313 $ 98,737 $ 89,276
--------- --------- --------- --------- ---------
Balance of reserve for possible loan losses at
beginning of period $ 3,571 $ 4,013 $ 1,257 $ 1,046 $ 1,038
--------- --------- --------- --------- ---------
Charge-offs:
Commercial, financial and agricultural (431) (428) (406) (214) (95)
Real estate (144) (1,851) (698) (200) (25)
Consumer (396) (374) (318) (41) (271)
Recoveries:
Commercial, financial and agricultural 74 273 26 44 79
Real estate 265 554 210 166 17
Consumer 180 193 113 5 91
--------- --------- --------- --------- ---------
Net charge-offs (452) (1,633) (1,073) (240) (204)
--------- --------- --------- --------- ---------
Additions to reserve charged to operating expenses 638 1,191 1,129 451 212
--------- --------- --------- --------- ---------
Allowance for loan losses of acquired subsidiary - - 2,700 - -
--------- --------- --------- --------- ---------
Balance of reserve for possible loan losses $ 3,757 $ 3,571 $ 4,013 $ 1,257 $ 1,046
========= ========= ========= ========= =========
Ratio of net loan charge-offs to average loans .25% 1.02% .91% .24% .23%
========= ========= ========= ========= =========
</TABLE>
39
<PAGE>
DEPOSITS
Average amount of deposits and average rate paid thereon,
classified as to noninterest-bearing demand deposits, interest-bearing demand
and savings deposits and time deposits, for the periods indicated are presented
below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1993
---------------------- ----------------------
AMOUNT RATE AMOUNT RATE
--------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
-----------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 38,965 - % $ 34,598 - %
Interest-bearing demand and savings deposits 88,482 2.87 87,867 3.06
Time deposits 112,730 4.49 108,288 4.44
--------- ---------
Total deposits $ 240,177 $ 230,753
========= =========
</TABLE>
The amounts of time certificates of deposit issued in amounts of
$100,000 or more as of December 31, 1994, are shown below by category, which is
based on time remaining until maturity of (1) three months or less, (2) over
three through twelve months and (3) over twelve months.
<TABLE>
<CAPTION>
(Dollars in
Thousands)
-----------
<S> <C>
Three months or less $ 3,734
Over three through twelve months 17,136
Over twelve months 6,421
-----------
Total $ 27,291
===========
</TABLE>
40
<PAGE>
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following rate of return information for the periods
indicated is presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Return on assets (1) 1.15 % 1.03 % 0.78 %
Return on equity (2) 13.99 13.65 7.98
Dividends payout ratio (3) 27.14 27.34 48.72
Equity to assets ratio (4) 8.26 7.53 9.83
</TABLE>
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by net income per share.
(4) Average equity divided by average total assets.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company
and its subsidiaries are included on pages F-1 through F-30 of this Annual
Report on Form 10-KSB:
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Income - Years ended December 31, 1994, 1993
and 1992
Consolidated Statements of Stockholders' Equity - Years ended December
31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows - Years ended December 31, 1994,
1993 and 1992
Notes to Consolidated Financial Statements.
41
<PAGE>
ITEM 8. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE
During 1994, the Company did not change its accountants and
there was no disagreement on any matter of accounting principles or practices
for financial statement disclosure that would have required the filing of a
current report on Form 8-K.
42
<PAGE>
PART III
ITEM 9. DIRECTORS. EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this Item is incorporated by
reference to the Company's definitive Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days
after the end of the fiscal year covered by this Annual Report ("ABC's Proxy
Statement").
Information concerning the Company's executive officers is
included in Item 1 of Part I of this Annual Report.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by
reference to ABC's Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by
reference to ABC's Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by
reference to ABC's Proxy Statement.
43
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Item 13(a) 1., 2. and 3.
(a) The following documents are filed as part of this report:
1. Financial statements:
(a) ABC Bancorp and Subsidiaries:
(i) Consolidated Balance Sheets - December
31, 1994 and 1993
(ii) Consolidated Statements of Income - Years
ended
December 31, 1994, 1993 and 1992
(iii) Consolidated Statements of Stockholders'
Equity - Years ended December 31, 1994,
1993 and 1992
(iv) Consolidated Statements of Cash Flows -
Years ended December 31, 1994, 1993 and
1992
(v) Notes to Consolidated Financial
Statements
(b) ABC Bancorp (Parent Company Only):
Parent Company only financial information has
been included in Note 14 of Notes to
Consolidated financial statements.
2. Financial statement schedules:
All schedules are omitted as the required information is
inapplicable or the information is presented in the
financial statements or related notes.
44
<PAGE>
3. Exhibits required by Item 601 of Regulation S-B:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- ---------------
<C> <S>
3.1 Articles of Incorporation, as amended (filed as
Exhibit 2.1 to the Registrant's Regulation A
Offering Statement on Form 1-A (File No. 24A-
2630), filed with the Commission on August 14,
1987 and incorporated herein by reference).
3.2 By-laws of the Registrant, as amended (filed as
Exhibit 2.2 to the Registrant's Regulation A
Offering Statement on Form 1-A (File No. 24A-
2630), filed with the Commission on August 14,
1987 and incorporated herein by reference).
10.1 * 1985 Incentive Stock Option Plan (filed as
Exhibit 5.1 to the Registrant's Regulation A
Offering Statement on Form 1-A (File No. 24A-
2630), filed with the Commission on August 14,
1987 and incorporated herein by reference).
10.2 * Incentive Stock Option Agreement with Kenneth
J. Hunnicutt dated October 17, 1985 (filed as
Exhibit 5.2 to the Registrant's Regulation A
Offering Statement on Form 1-A (File No. 24A-
2630), filed with the Commission on August 14,
1987 and incorporated herein by reference).
10.3 * Deferred Compensation Agreement for Kenneth J.
Hunnicutt dated December 16, 1986 (filed as
Exhibit 5.3 to the Registrant's Regulation A
Offering Statement on Form 1-A (File No. 24A-
2630), filed with the Commission on August 14,
1987 and incorporated herein by reference).
10.4 Security Deed in favor of M.I.A., Co. dated
December 31, 1984 (filed as Exhibit 5.4 to the
Registrant's Regulation A Offering Statement on
Form 1-A (File No. 24A-2630), filed with the
Commission on August 14, 1987 and incorporated
herein by reference).
10.5 Loan Agreement and Master Term Note dated
December 30, 1986 (filed as Exhibit 5.5 to the
Registrant's Regulation A Offering Statement on
Form 1-A (File No. 24A-2630), filed with the
Commission on August 14, 1987 and incorporated
herein by reference).
</TABLE>
45
<PAGE>
Exhibit
No. Description
------- ---------------
[C] [S]
10.6 * Executive Salary Continuation Agreement dated
February 14, 1984 (filed as Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K (File
Number 2-71257), filed with the Commission on
March 27, 1989 and incorporated herein by
reference).
10.7 * 1992 Incentive Stock Option Plan and Option
Agreement for K. J. Hunnicutt (filed as Exhibit
10.7 to the Registrant's Annual Report on Form
10-KSB (File Number 0-16181), filed with the
Commission on March 30, 1993 and incorporated
herein by reference).
10.8* Executive Employment Agreement with Kenneth J.
Hunnicutt dated September 20, 1994.
10.9.* Executive Consulting Agreement with Eugene M.
Vereen dated September 20, 1994.
22.1 Subsidiaries of the Company (filed as Exhibit
22.1 to the Registrant's Annual Report on Form
10-KSB (File Number 0-16181), filed with the
Commission on March 30, 1993 and incorporated
herein by reference).
25.1 Power of Attorney relating to this Form10-KSB
is set forth on the signature pages to this
Form 10-KSB.
* Identifies management contracts, compensatory plans or other
remunerative arrangements with the Registrant's executive
officers.
(b) The Registrant did not file any reports on Form 8-K during the
last quarter of the period covered by this report.
46
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ABC BANCORP
Date: March 21, 1995 By: /s/ Kenneth J. Hunnicutt
------------------ ---------------------------------------------------
Kenneth J. Hunnicutt, President, Chief Executive
Officer and Director
Date: March 21, 1995 By: /s/ W. Edwin Lane, Jr.
------------------ ---------------------------------------------------
W. Edwin Lane, Jr., Executive Vice President
and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenneth J. Hunmnicutt as his attorney-in-fact,
acting will full power of substitution for him in his name, place and stead, in
any and all capacities, to sign any amendments to this Form 10-KSB and to file
the same, with exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission and hereby ratifies and
confirms all that said attorney-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Exchange Act, this Form 10-KSB has been
signed by the following persons in the capacities and on the dates indicated.
Date: March 21, 1995 /s/ Kenneth J. Hunnicutt
-------------- ------------------------------------------------------
Kenneth J. Hunnicutt, President, Chief Executive
Officer and Director
Date: March 21, 1995 /s/ W. Edwin Lane, Jr.
-------------- ------------------------------------------------------
W. Edwin Lane, Jr., Executive Vice President and
Chief Financial Officer
Date: March 21, 1995 /s/ J. Raymond Fulp
-------------- ------------------------------------------------------
J. Raymond Fulp, Director
Date: March 21, 1995 /s/ Willard E. Lasseter
-------------- ------------------------------------------------------
Willard E. Lasseter, Director and Vice Chairman of the
Board
47
<PAGE>
Date: March 21, 1995 /s/ Bobby B. Lindsey
-------------- ------------------------------------------------------
Bobby B. Lindsey, Director
Date: March 21, 1995 /s/ Hal L. Lynch
-------------- ------------------------------------------------------
Hal L. Lynch, Director
Date: March 21, 1995 /s/ Joseph C. Parker
-------------- ------------------------------------------------------
Joseph C. Parker, Director
Date: March 21, 1995 /s/ Eugene M. Vereen, Jr.
-------------- ------------------------------------------------------
Eugene M. Vereen, Jr., Chairman of the Board and
Director
Date: March 21, 1995 /s/ Doyle Weltzbarker
-------------- ------------------------------------------------------
Doyle Weltzbarker, Director
Date: March 21, 1995 /s/ Henry Wortman
-------------- ------------------------------------------------------
Henry Wortman, Director
48
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
3.1 Articles of Incorporation, as amended (filed as Exhibit 2.1 to the
Registrant's Regulation A Offering Statement on Form 1-A (File No.
24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
3.2 By-laws of the Registrant, as amended (filed as Exhibit 2.2 to the
Registrant's Regulation A Offering Statement on Form 1-A (File No.
24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to the
Registrant's Regulation A Offering Statement on Form 1-A (File No.
24A-2630), filed with the Commission on August 14, 1987 and
incorporated herein by reference).
10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated
October 17, 1985 (filed as Exhibit 5.2 to the Registrant's Regulation
A Offering Statement on Form 1-A (File No. 24A-2630), filed with
the Commission on August 14, 1987 and incorporated herein by
reference).
10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated
December 16, 1986 (filed as Exhibit 5.3 to the Registrant's Regulation
A Offering Statement on Form 1-A (File No. 24A-2630), filed with the
Commission on August 14, 1987 and incorporated herein by reference).
10.3 Security Deed in favor of M.I.A., Co. dated December 31, 1984 (filed
as Exhibit 5.4 to the Registrant's Regulation A Offering Statement on
Form 1-A (File No. 24A-2630), filed with the Commission on August 14,
1987 and incorporated herein by reference).
10.5 Loan Agreement and Master Term Note dated December 30, 1986 (filed as
Exhibit 5.5 to the Registrant's Regulation A Offering Statement on
Form 1-A (File No. 24A-2630), filed with the Commission on August 14,
1987 and incorporated herein by reference).
10.6 Executive Salary Continuation Agreement dated February 14, 1984 (filed
as Exhibit 10.6 to the Annual Report on Form10-K (File Number 2-
71257), filed herewith with the Commission on March 27, 1989 and
incorporated herein by reference).
49
<PAGE>
Exhibit
No. Description
------- -----------
10.7 1992 Incentive Stock Option Plan and Option Agreement for K. J.
Hunnicutt (filed at Exhibit 10.7 to the Registrant's Annual Report on
Form 10-KSB (File Number 0-16181), filed with the Commission on March
30, 1993 and incorporated herein by reference.)
10.8 Executive Employment Agreement with Kenneth J. Hunnicutt dated
September 20, 1994.
10.9 Executive Consulting Agreement with Eugene M. Vereen dated September
20, 1994.
22.1 Subsidiaries of the Company (filed as Exhibit 22.1 to the Registrant's
Annual Report on Form 10-KSB (File Number 0-16181, filed with the
Commission on March 30, 1993 and incorporated herein by reference).
25.1 Power of Attorney relating to this Form 10-KSB is set forth on the
signature pages to this Form 10-KSB.
50
<PAGE>
ABC BANCORP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Consolidated financial statements:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Income - Years ended December 31, 1994, 1993
and 1992
Consolidated Statements of Stockholders' Equity - Years ended December 31,
1994, 1993 and 1992
Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993
and 1992
Notes to Consolidated Financial Statements
All schedules are omitted as the required information is inapplicable or the
information is presented in the financial statements or related notes.
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
================================================================================
TO THE BOARD OF DIRECTORS
ABC BANCORP
MOULTRIE, GEORGIA
We have audited the accompanying consolidated balance sheets of
the ABC BANCORP AND SUBSIDIARIES as of December 31, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of ABC
Bancorp and Subsidiaries as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
income taxes.
Albany, Georgia
January 27, 1995
F-2
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
================================================================================
<TABLE>
<CAPTION>
ASSETS 1994 1993
------ ----------- -----------
<S> <C> <C>
Cash and due from banks $ 20,089 $ 16,994
Interest-bearing deposits in banks - 1,257
Federal funds sold 21,902 31,575
Securities available for sale, at fair value (Note 3) 1,910 -
Securities held for investment, at cost (fair value $43,024
and $46,856) (Note 3) 44,595 45,937
Loans (Note 4) 192,124 161,747
Less allowance for loan losses 3,757 3,571
----------- -----------
Loans, net 188,367 158,176
----------- -----------
Premises and equipment, net (Note 5) 7,171 5,766
Other assets 8,765 8,911
$ 292,799 $ 268,616
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------
Deposits
Noninterest-bearing demand $ 48,450 $ 38,206
Interest-bearing demand 63,262 66,156
Savings 23,644 28,440
Time, $100,000 and over 27,291 20,543
Other time 94,222 84,880
----------- -----------
Total deposits 256,869 238,225
Securities sold under repurchase agreements 2,338 3,180
Long-term debt (Note 6) - 4,677
Other liabilities 3,142 2,575
----------- -----------
Total liabilities 262,349 248,657
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 10)
STOCKHOLDERS' EQUITY (Note 12)
Common stock, par value $1; 3,000,000 shares authorized,
2,697,987 and 1,950,487 shares issued, respectively 2,698 1,950
Capital surplus 17,728 10,152
Retained earnings 11,753 9,537
Unrealized losses on securities available for sale, net of taxes (49) -
----------- -----------
32,130 21,639
Less cost of 183,412 shares acquired for the treasury (1,680) (1,680)
----------- -----------
Total stockholders' equity 30,450 19,959
----------- -----------
$ 292,799 $ 268,616
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
================================================================================
<TABLE>
<CAPTION>
1994 1993 1992
---------- ------------ ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 18,017 $ 16,278 $ 12,551
Interest on taxable securities 1,863 1,892 1,629
Interest on nontaxable securities 610 597 680
Interest on deposits in other banks 65 105 137
Interest on Federal funds sold 773 825 674
---------- ------------ ----------
21,328 19,697 15,671
---------- ------------ ----------
INTEREST EXPENSE
Interest on deposits 7,603 7,476 6,570
Interest on securities sold under repurchase agreements 68 18 31
Interest on other borrowings 157 238 91
---------- ------------ ----------
7,828 7,732 6,692
---------- ------------ ----------
Net interest income 13,500 11,965 8,979
PROVISION FOR LOAN LOSSES (Note 4) 638 1,191 1,129
---------- ------------ ----------
Net interest income after provision for loan losses 12,862 10,774 7,850
---------- ------------ ----------
OTHER INCOME
Service charges on deposit accounts 2,456 2,299 1,729
Other service charges, commissions and fees 224 230 153
Other 345 338 212
---------- ------------ ----------
3,025 2,867 2,094
---------- ------------ ----------
OTHER EXPENSES
Salaries and employee benefits (Note 7) 5,711 5,238 3,886
Equipment expense 1,091 723 599
Occupancy expense 663 844 544
Amortization of intangible assets 268 279 274
Data processing fees 448 290 306
Directors fees 291 270 248
FDIC premiums 559 551 383
Other operating expenses 2,516 2,340 1,790
---------- ------------ ----------
11,547 10,535 8,030
---------- ------------ ----------
</TABLE>
F-4
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
================================================================================
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- ---------------
<S> <C> <C> <C>
Income before income taxes and cumulative
effect of accounting change $ 4,340 $ 3,106 $ 1,914
Applicable income taxes (Note 9) 1,240 814 429
-------------- -------------- ---------------
Income before cumulative effect of
accounting change 3,100 2,292 1,485
Cumulative effect of change in method of accounting
for income taxes - 346 -
-------------- -------------- ---------------
Net income $ 3,100 $ 2,638 $ 1,485
============== ============== ===============
Income per common share:
Income before cumulative effect of accounting change $ 1.40 $ 1.21 $ 0.78
Cumulative effect of accounting change - 0.18 -
-------------- -------------- ---------------
Net income (Note 1) $ 1.40 $ 1.39 $ 0.78
============== ============== ===============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
================================================================================
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------- RETAINED
Shares PAR VALUE SURPLUS EARNINGS
----------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 1,950,487 $ 1,950 $ 10,152 $ 6,812
Net income - - - 1,485
Cash dividends paid, $ .38 per share - - - (726)
Purchase of 1,000 shares of treasury stock - - - -
----------- ------------- ------------- --------------
BALANCE, DECEMBER 31, 1992 1,950,487 1,950 10,152 7,571
Net income - - - 2,638
Cash dividends paid, $.38 per share - - - (672)
Purchase of 143,024 shares of treasury stock - - - -
----------- ------------- ------------- --------------
BALANCE, DECEMBER 31, 1993 1,950,487 1,950 10,152 9,537
Net income - - - 3,100
Cash dividends declared, $.38 per share - - - (884)
Proceeds from sale of stock, net of stock
offering expense 747,500 748 7,576 -
Net change in unrealized losses on
securities available for sale, net of taxes - - - -
----------- ------------- ------------- --------------
BALANCE, DECEMBER 31, 1994 2,697,987 $ 2,698 $ 17,728 $ 11,753
=========== ============= ============= ==============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Unrealized
LOSSES ON
SECURITIES
AVAILABLE
FOR SALE, TREASURY STOCK
------------------------
NET OF TAXES SHARES COST TOTAL
-------------- ---------- ----------- -------------
<S> <C> <C> <C>
$ - 39,388 $ (260) $ 18,654
- - - 1,485
- - - (726)
- 1,000 (8) (8)
-------------- ---------- ----------- -------------
- 40,388 (268) 19,405
- - - 2,638
- - - (672)
- 143,024 (1,412) (1,412)
-------------- ---------- ----------- -------------
- 183,412 (1,680) 19,959
- - - 3,100
- - - (884)
- - - 8,324
(49) - - (49)
-------------- ---------- ----------- -------------
$ (49) 183,412 $ (1,680) $ 30,450
============== ========== =========== =============
</TABLE>
F-6
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
================================================================================
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,100 $ 2,638 $ 1,485
-------------- -------------- --------------
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 809 638 454
Amortization of intangible assets 268 279 274
Provision for loan losses 638 1,191 1,129
Provision for deferred taxes (22) (170) (6)
Write-downs of other real estate owned 53 - -
(Increase) decrease in interest receivable (804) 100 687
Increase (decrease) in interest payable 104 (90) (520)
Increase (decrease) in taxes payable 184 76 (399)
Other prepaids, deferrals and accruals, net 798 (178) (596)
-------------- -------------- --------------
Total adjustments 2,028 1,846 1,023
-------------- -------------- --------------
Net cash provided by operating activities 5,128 4,484 2,508
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest-bearing deposits in banks 1,257 100 526
Purchases of securities available for sale (1,664) - -
Purchases of securities held for investment (7,524) (24,502) (9,618)
Proceeds from maturities of securities held
for investment 8,531 13,587 13,214
(Increase) decrease in Federal funds sold 9,673 9,565 (11,465)
(Increase) decrease in loans, net (30,829) (12,435) 1,228
Purchase of premises and equipment (2,303) (382) (980)
Proceeds from the sale of premises and equipment 22 26 -
Net cash received in bank acquisition - - 1,182
-------------- -------------- --------------
Net cash used in investing activities (22,837) (14,041) (5,913)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 18,644 3,755 8,156
Increase (decrease) in repurchase agreements (842) 3,117 (574)
Proceeds from other borrowings - 1,412 3,000
Repayment of long-term debt (4,677) (15) (507)
Dividends paid (645) (672) (726)
Proceeds from stock offering, net 8,324 - -
Purchase of shares of stock for the treasury - (1,412) (8)
-------------- --------------- --------------
Net cash provided by financing activities 20,804 6,185 9,341
-------------- --------------- --------------
</TABLE>
F-7
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
================================================================================
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- --------------
<S> <C> <C> <C>
Net increase (decrease) in cash and due from banks $ 3,095 $ (3,372) $ 5,936
Cash and due from banks at beginning of year 16,994 20,366 14,430
--------------- --------------- --------------
Cash and due from banks at end of year $ 20,089 $ 16,994 $ 20,366
=============== =============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 7,724 $ 7,822 $ 7,212
Income taxes $ 1,078 $ 562 $ 834
NONCASH TRANSACTIONS
Unrealized losses on securities available for sale $ 54 $ - $ -
Property transferred from premises and equipment
to other real estate owned $ 103 $ - $ -
Dividends declared $ 239 $ - $ -
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
<PAGE>
ABC BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ABC Bancorp is a bank holding company whose business is presently
conducted by its wholly-owned subsidiaries, American Banking Company,
The Bank of Quitman, Bank of Thomas County, The Citizens Bank of
Tifton and Cairo Banking Company. The accounting and reporting
policies of the Company conform to generally accepted accounting
principles and with general practices within the banking industry.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany transactions
and accounts are eliminated in consolidation. Assets held by the
Banks in a fiduciary or agency capacity are not assets of the Banks
and are not included in the consolidated financial statements.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from loans originated by
the Bank, deposits, interest-bearing deposits and Federal funds
purchased and sold are reported net.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
INVESTMENTS IN SECURITIES
The Company's investments in securities are classified and
accounted for as follows:
SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of bonds, notes, debentures
and certain marketable equity securities, and are carried at fair
value with unrealized gains and losses, net of taxes, reported as
a net amount, in a separate component of stockholders' equity.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SECURITIES HELD FOR INVESTMENT
Bonds, notes and debentures for which the Bank has the positive
intent and ability to hold to maturity are reported at cost,
adjusted for amortization of premiums and accretion of discounts
which are recognized in interest income using the interest method
over the period to maturity.
Realized gains and losses on the sale of securities available for
sale are determined using the specific-identification method.
LOANS
Loans are stated at the amount of unpaid principal, reduced by
unearned interest. Interest on commercial and real estate loans is
credited to income on a daily basis based upon the principal amount
outstanding. Most interest on installment loans is credited to
income on a daily basis based upon the principal amount outstanding.
The remaining interest on installment loans is credited to income
based on the sum-of-the-months-digits method, the results of which
are not materially different from generally accepted accounting
principles.
Accrual of interest income is discontinued on loans when, in the
opinion of management, collection of such interest income becomes
doubtful. When a loan is placed on nonaccrual status, all interest
previously accrued but not collected is reversed against current
interest income. Accrual of interest on such loans is resumed when,
in management's judgment, the collection of interest and principal
becomes probable.
LOAN FEES
Fees on loans and costs incurred in origination of loans are
recognized at the time the loan is placed on the books. Because loan
fees are not significant and the majority of loans have maturities
of one year or less, the results on operations are not materially
different than the results which would be obtained by accounting for
loan fees and costs in accordance with generally accepted accounting
principles.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for
loan losses charged to expenses. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb possible
losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss
experience.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation, computed principally on the straight-line method over
the following estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings 15-40
Equipment 5-7
</TABLE>
INTANGIBLE ASSETS
Intangible assets, arising from excess of purchase price over net
assets acquired of purchased banks, are being amortized on the
straight-line method over various periods not exceeding 25 years.
INCOME TAXES
The Company and its subsidiaries file a consolidated income tax
return. Each subsidiary provides for income taxes based on its
contribution to income taxes (benefits) of the consolidated group.
As of January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". SFAS No. 109 requires a balance sheet approach to accounting
for income taxes and requires that deferred tax assets and
liabilities be adjusted in the period of enactment for the effect of
an enacted change in tax laws or rates. The adoption of SFAS No. 109
resulted in an income tax benefit of $345,937, which has been
included in the consolidated statement of income for the year ended
December 31, 1993 as a cumulative effect.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted
average number of shares outstanding.
Current Accounting Developments
The Financial Accounting Standards Board has issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan", which becomes
effective for years beginning after December 15, 1994.
SFAS No. 114 generally requires impaired loans to be measured on the
present value of expected future cash flows discounted at the loan's
effective interest rate, or as an expedient, at the loan's
observable market price or the fair value of the collateral if the
loan is collateral dependent. A loan is impaired when it is probable
the creditor will be unable to collect all contractual principal and
interest payments due in accordance with terms of the loan
agreement.
The adoption of this Statement is not expected to have a material
effect on the Company's consolidated financial statements.
NOTE 2. ACQUISITION
On October 1, 1992, the Company acquired all of the outstanding common
stock of Cairo Banking Company for $1,175,000 in cash. The acquisition
was accounted for as a purchase and, accordingly, the acquired assets
and liabilities were recorded at their estimated fair values at the
date of acquisition. There was no resulting excess cost over the fair
value of assets acquired. The results of operations from October 1,
1992 have been included in the consolidated financial statements.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 2. ACQUISITION (Continued)
Summarized below is the unaudited consolidated pro forma results of
operations, assuming the acquisition had occurred on January 1, 1992.
The pro forma financial information does not purport to be indicative
either of results of operations that would have occurred had the
acquisition been consummated on January 1, 1992 or future results of
the combined companies.
<TABLE>
<CAPTION>
(UNAUDITED)
(IN THOUSANDS,
EXCEPT
PER SHARE
AMOUNT)
--------------
<S> <C>
Net interest income $ 11,194
Other income 2,510
Net income 1,070
Net income per share 0.56
</TABLE>
NOTE 3. INVESTMENTS IN SECURITIES
Effective January 1, 1994, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
Upon adoption, the Company transferred $300,005 of marketable equity
securities from securities held for investment to securities available
for sale. The securities available for sale were marked to fair value
resulting in a net unrealized loss of $11,986 which was included in
stockholders' equity at $11,986.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 3. INVESTMENTS IN SECURITIES (Continued)
The carrying amounts of investments in securities as shown in the
consolidated balance sheets of the Company and their approximate fair
values at December 31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ------------ ------------ ----------
(DOLLARS IN THOUSANDS)
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
DECEMBER 31, 1994:
U. S. GOVERNMENT AND AGENCY SECURITIES $ 1,664 $ - $ (14) $ 1,650
OTHER SECURITIES 300 - (40) 260
------------ ------------ ------------ -----------
$ 1,964 $ - $ (54) $ 1,910
============ ============ ============ ===========
SECURITIES hELD FOR iNVESTMENT
DECEMBER 31, 1994:
U. S. GOVERNMENT AND AGENCY SECURITIES $ 32,159 $ 19 $ (1,196) $ 30,982
STATE AND MUNICIPAL SECURITIES 9,819 114 (471) 9,462
MORTGAGE-BACKED SECURITIES 2,617 22 (59) 2,580
------------ ------------ ------------ -----------
$ 44,595 $ 155 $ (1,726) $ 43,024
============ ============ ============ ===========
December 31, 1993:
U. S. Treasury and government agencies $ 32,033 $ 430 $ (42) $ 32,421
Municipal securities 11,004 469 (78) 11,395
Mortgage-backed securities 2,600 140 - 2,740
Other securities 300 - - 300
------------ ------------ ------------ -----------
$ 45,937 $ 1,039 $ (120) $ 46,856
============ ============ ============ ===========
</TABLE>
There were no sales of securities during 1994, 1993 or 1992.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 3. INVESTMENTS IN SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31,
1994 by contractual maturity are shown below. Maturities may differ
from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without
any penalties. Therefore, these securities are not included in the
maturity categories in the following maturity summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE SECURITIES HELD
FOR SALE FOR INVESTMENT
--------------------------- -------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 467 $ 467 $ 13,076 $ 12,909
Due from one year to five years 1,197 1,183 22,140 21,071
Due from five to ten years - - 4,934 4,669
Due after ten years - - 1,828 1,795
Mortgage-backed securities - - 2,617 2,580
Marketable equity securities 300 260 - -
------------- ------------ ------------ ------------
$ 1,964 $ 1,910 $ 44,595 $ 43,024
============= ============ ============ ============
</TABLE>
Securities with a carrying value of $28,616,565 and $24,540,302 at
December 31, 1994 and 1993, respectively, were pledged to secure
public deposits and for other purposes.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1994 1993
----------- ------------
(DOLLARS IN THOUSANDS)
----------------------------------
<S> <C> <C>
Commercial and financial $ 23,531 $ 20,849
Agricultural 17,079 9,767
Real estate - construction 1,828 3,387
Real estate - mortgage, farmland 34,887 29,489
Real estate - mortgage, commercial 35,242 27,402
Real estate - mortgage, residential 44,064 41,902
Consumer instalment loans 34,220 27,352
Other 1,280 1,720
------------ ------------
192,131 161,868
Unearned discount (7) (121)
Allowance for loan losses (3,757) (3,571)
------------ ------------
$ 188,367 $ 158,176
============ ============
</TABLE>
Loans on which the accrual of interest had been discontinued or
reduced amounted to $3,817,699 and $3,119,209 at December 31, 1994 and
1993, respectively. The reduction in interest income associated with
nonaccrual and renegotiated loans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1994 1993 1992
------------- -------------- -----------
(DOLLARS IN THOUSANDS)
---------------------------------------------
<S> <C> <C> <C>
Income in accordance with original
loan terms $ 324 $ 201 $ 70
Income recognized 37 9 7
------------ ------------- -------------
$ 287 $ 192 $ 63
============ ============= =============
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
At December 31, 1994, executive officers and directors, and companies
in which they have a 10 percent or more beneficial ownership, were
indebted to the Company in the aggregate amount of $7,233,850. The
interest rates on these loans were substantially the same as rates
prevailing at the time of the transaction and repayment terms are
customary for the type of loan involved. Following is a summary of
transactions:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1994 1993
------------- ---------------
(DOLLARS IN THOUSANDS)
---------------------------------------
<S> <C> <C>
BALANCE, BEGINNING $ 8,506 $ 5,715
Advances 4,670 5,683
Repayments (4,890) (3,119)
Transactions due to changes in directors (1,052) 227
-------------- --------------
BALANCE, END OF YEAR $ 7,234 $ 8,506
============== ==============
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1994 1993
-------------- ----------------
(DOLLARS IN THOUSANDS)
----------------------------------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 3,571 $ 4,013
Provision charged to operations 638 1,191
Loans charged off (971) (2,653)
Recoveries 519 1,020
-------------- --------------
BALANCE, END OF YEAR $ 3,757 $ 3,571
============== ==============
</TABLE>
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 5. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1994 1993
--------------- ----------------
(DOLLARS IN THOUSANDS)
---------------------------------------
<S> <C> <C>
Land $ 1,564 $ 1,522
Buildings 5,271 5,318
Equipment 6,223 4,597
Construction in progress - 137
--------------- ---------------
13,058 11,574
Accumulated depreciation (5,887) (5,808)
--------------- ---------------
$ 7,171 $ 5,766
=============== ===============
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1993 and
1992 was $738,562, $462,368 and $392,708, respectively.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1993:
<TABLE>
<CAPTION>
(Dollars in
Thousands)
-----------
<S> <C>
Note payable to Trust Company Bank; interest at the $ 250
prime interest rate of Trust Company Bank with an
effective interest rate of 5.5% at December 31, 1993;
collateralized by all of the outstanding common stock
of The Citizens Bank of Tifton.
Term loan payable to Trust Company Bank; interest 3,000
at Trust Company Bank's prime rate with an
effective rate of 5.5% at December 31, 1993.
Revolving credit loan with Trust Company Bank; 1,412
interest due at Trust Company Bank's prime rate
with an effective rate of 5.5% at December 31, 1993.
Mortgage payable to M.I.A., Co.; due in annual 15
instalments of $15,000 with interest at 12%
payable monthly, collateralized by land and buildings.
-----------
$ 4,677
===========
</TABLE>
NOTE 7. EMPLOYEE BENEFIT PLANS
The Company and all subsidiaries have adopted simplified employee
pension plans for substantially all employees. These plans are SEP-IRA
defined contribution plans. Contributions to these plans charged to
expense during 1994, 1993 and 1992 amounted to $499,254, $484,870 and
$344,598, respectively.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 8. DEFERRED COMPENSATION PLANS
The Company and two subsidiary Banks have entered into separate
deferred compensation arrangements with certain executive officers and
directors. The plans call for certain amounts payable at retirement,
death or disability. The estimated present value of the deferred
compensation is being accrued over the remaining expected term of
active employment. The Company and Banks have purchased life insurance
policies which they intend to use to finance this liability. Aggregate
compensation expense under the plans were $81,295, $83,459 and $75,816
for 1994, 1993 and 1992, respectively, and is included in other
operating expenses.
NOTE 9. INCOME TAXES
The total income taxes in the consolidated statements of income are as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1994 1993 1992
---------- --------- ---------
(Dollars in Thousands)
------------------------------------------
<S> <C> <C> <C>
Current $ 1,262 $ 638 $ 435
Deferred (22) 176 (6)
---------- --------- ---------
$ 1,240 $ 814 $ 429
========== ========= =========
</TABLE>
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 9. INCOME TAXES (Continued)
The Company's provision for income taxes differs from the amounts
computed by applying the Federal income tax statutory rates to income
before income taxes. A reconciliation of the differences is as
follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1994 1993 1992
--------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent
---------- --------- ---------- --------- ---------- ---------
(Dollars in Thousands)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate $ 1,475 34 % $ 1,056 34 % $ 651 34 %
Increase (decrease) resulting
from:
Tax-exempt interest (246) (6) (274) (9) (277) (15)
Amortization of excess
cost over assets acquired 37 1 49 2 57 3
Changes in valuation
allowance for deferred
taxes (50) (1) - - - -
Other 24 1 (17) (1) (2) -
---------- --------- ---------- --------- ---------- ---------
Provision for income taxes $ 1,240 29 % $ 814 26 % $ 429 22 %
========== ========= ========== ========= ========== =========
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 9. INCOME TAXES (CONTINUED)
Net deferred income tax assets of $411,710 and $390,006 at December
31, 1994 and 1993, respectively, are included in other assets. The
components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- -------
(DOLLARS IN THOUSANDS)
-------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Loan loss reserves $ 640 $ 592
Deferred compensation 138 122
Other real estate 18 25
Other 68 7
Net operating loss tax carryforward 310 364
Less valuation allowance (300) (350)
---------- ----------
874 760
---------- ----------
DEFERRED TAX LIABILITIES:
Deprecation and amortization (179) (144)
Amortization of intangible assets (283) (226)
---------- ----------
(462) (370)
---------- ----------
Net deferred tax assets $ 412 $ 390
========== ==========
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES
In the ordinary course of business, the Banks have entered into off
balance sheet financial instruments which are not reflected in the
consolidated financial statements. These instruments include
commitments to extend credit, standby letters of credit, guarantees
and liability for assets held in trust. Such financial instruments are
recorded in the financial statements when funds are disbursed or the
instruments become payable. The Banks use the same credit and
collateral policies for these off balance sheet financial instruments
as they do for instruments that are recorded in the consolidated
financial statements.
Following is an analysis of significant off balance sheet financial
instruments.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1993
---------- ----------
(DOLLARS IN THOUSANDS)
-----------------------------
<S> <C> <C>
Commitments to extend credit $ 22,344 $ 20,831
Standby letters of credit 590 1,081
---------- ----------
$ 22,934 $ 21,912
========== ==========
</TABLE>
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitment
amounts expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The credit risk
involved in issuing these financial instruments is essentially the
same as that involved in extending loans to customers. The amount of
collateral obtained, if it is deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
customer. Collateral held varies but may include real estate and
improvements, marketable securities, accounts receivable, inventory,
equipment and personal property.
The Banks do not anticipate any material losses as a result of the
commitments and contingent liabilities.
The nature of the business of the Banks is such that it ordinarily
results in a certain amount of litigation. In the opinion of
management and counsel for the Company and the Banks, there is no
litigation in which the outcome will have a material effect on the
consolidated financial statements.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 11. CONCENTRATIONS OF CREDIT
Most of the Banks' loans, commitments and standby letters of credit
have been granted to customers in the Banks' individual market areas.
Most of the Banks' loan customers are also depositors of the Banks.
The Banks' investment portfolios may also include state and municipal
securities of governmental entities within the Banks' market areas.
The concentrations of credit by type of loan are also set forth in
Note 4. Standby letters of credit are granted primarily to commercial
borrowers of the Banks. The Banks, as a matter of policy, do not
generally extend credit to any single borrower or group of related
borrowers in excess of 25% of each Bank's combined capital stock and
capital surplus accounts.
NOTE 12. STOCKHOLDERS' EQUITY
The primary source of funds available to the Parent Company is the
payment of dividends by the subsidiary Banks. Banking regulations
limit the amount of dividends that may be paid without prior approval
of the Banks' regulatory agency. Approximately $1,815,000 are
available to be paid as dividends by the Bank subsidiaries at December
31, 1994.
Banking regulations also require the Company to maintain minimum
capital levels in relation to Company assets. At December 31, 1994,
the Company's capital ratios were considered adequate based on
regulatory minimum capital requirements. The minimum capital
requirements and the actual capital ratios for the Company at December
31, 1994 are as follows:
<TABLE>
<CAPTION>
Actual Regulatory
Requirement
------------- -------------
<S> <C> <C>
Leverage capital ratio 10.26 % 4.00 %
Risk based capital ratios:
Core capital 15.26 4.00
Total capital 16.52 8.00
</TABLE>
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practical
to estimate that value:
CASH AND SHORT-TERM INVESTMENTS
For cash, due from banks, bank-owned deposits and Federal funds
sold, the carrying amount approximates fair value.
INVESTMENT SECURITIES
For debt securities and marketable equity securities held for sale
and investment purposes, fair values are based on quoted market
prices. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
LOANS
For fixed rate commercial and instalment loans, the fair value is
estimated by discounting the future cash flow using the average
rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities. For all
variable rate, equity line and credit card loans, the carrying
amount approximates fair value.
DEPOSITS
For noninterest-bearing demand, interest-bearing demand and savings
deposits, fair value is the amount payable on demand at the
reporting date. The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the
average rate currently offered for similar deposits.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
Commitments to extend credit and standby letters of credit are not
recorded until such commitments are funded. The value of these
commitments are the fees charged to enter into such agreements. These
commitments do not represent a significant value to the Company until
such commitments are funded. There has been no fair value assigned to
these instruments.
The carrying value and estimated fair value of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
---------- ----------
(DOLLARS IN THOUSANDS)
---------------------------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 20,089 $ 20,089
========== ==========
Investments in securities $ 46,505 $ 44,934
========== ==========
Loans $ 192,124 $ 185,314
Allowance for loan losses (3,757) -
---------- ----------
Loans, net $ 188,367 $ 185,314
========== ==========
FINANCIAL LIABILITIES:
Noninterest-bearing demand $ 48,450 $ 48,450
Interest-bearing demand 63,262 63,262
Savings 23,644 23,644
Time deposits 121,513 121,595
---------- ----------
Total deposits $ 256,869 $ 256,951
========== ==========
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 14. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Cash $ 1,307 $ 349
Interest-bearing deposits in banks 1,500 -
Investment in subsidiaries 24,461 20,550
Other assets 3,838 4,215
---------- ----------
Total assets $ 31,106 $ 25,114
========== ==========
LIABILITIES
Long-term debt $ - $ 4,677
Other liabilities 656 478
---------- ----------
Total liabilities 656 5,155
---------- ----------
STOCKHOLDERS' EQUITY 30,450 19,959
---------- ----------
Total liabilities and stockholders' equity $ 31,106 $ 25,114
========== ==========
</TABLE>
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 14. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $ 1,170 $ 1,150 $ 2,980
Interest 84 11 15
Fee and rental income 2,427 1,950 1,751
Other income 94 32 7
---------- ---------- ----------
Total income 3,775 3,143 4,753
---------- ---------- ----------
EXPENSE
Interest 111 193 91
Amortization and depreciation 436 423 411
Other expense 2,644 1,926 1,745
---------- ---------- ----------
Total expense 3,191 2,542 2,247
---------- ---------- ----------
Income before income taxes (benefits)
and equity in undistributed earnings
(distributions in excess of earnings)
of subsidiaries 584 601 2,506
Income taxes (benefits) (55) 147 (42)
---------- ---------- ----------
Income before equity in undistributed
earnings (distributions in excess of
earnings) of subsidiaries 639 454 2,548
Equity in undistributed earnings
(distributions in excess of earnings)
of subsidiaries 2,461 2,184 (1,063)
---------- ---------- ----------
Net income $ 3,100 $ 2,638 $ 1,485
========== ========== ==========
</TABLE>
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 14. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 3,100 $ 2,638 $ 1,485
---------- ---------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 168 144 137
Amortization of intangible assets 268 279 274
Distributions in excess of earnings
(undistributed earnings) of subsidiaries (2,461) (2,184) 1,063
Increase in interest receivable (6) - -
Increase (decrease) in taxes payable 30 19 (77)
Provision for deferred taxes 5 204 (10)
(Increase) decrease in due from
subsidiaries 45 (49) -
Other prepaids, deferrals and accruals, net 50 (56) (87)
---------- ---------- ----------
Total adjustments (1,901) (1,643) 1,300
---------- ---------- ----------
Net cash provided by operating
activities 1,199 995 2,785
---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Increase in interest-bearing deposits in banks (1,500) - -
Purchases of premises (243) (22) (105)
Acquisition of subsidiary bank - - (5,000)
Contribution of capital to subsidiary bank (1,500) - -
---------- ---------- ----------
Net cash used in investing activities (3,243) (22) (5,105)
---------- ---------- ----------
</TABLE>
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 14. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term debt $ - $ 1,412 $ 3,000
Repayment of long-term debt (4,677) (15) (265)
Proceeds from sale of stock, net of
stock offering expense 8,324 - -
Purchase of treasury stock - (1,412) (8)
Dividends paid (645) (672) (726)
---------- ---------- ----------
Net cash provided by (used in)
financing activities 3,002 (687) 2,001
---------- ---------- ----------
Net increase (decrease) in cash 958 286 (319)
Cash at beginning of year 349 63 382
---------- --------- ----------
Cash at end of year $ 1,307 $ 349 $ 63
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for interest $ 111 $ 193 $ 91
</TABLE>
F-30
<PAGE>
EXHIBIT 10.8
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), is made and dated as
of September 20, 1994, by and between ABC BANCORP, a Georgia corporation
("Employer"), and KENNETH J. HUNNICUTT, an individual resident of Moultrie,
Georgia ("Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Executive is employed by Employer as its President and Chief
Executive Officer and has made valuable contributions to the profitability and
financial strength of Employer;
WHEREAS, Employer desires to encourage Executive to continue to make
valuable contributions to Employer's business operations and not to seek or
accept employment elsewhere;
WHEREAS, Executive desires to be assured of a secure minimum compensation
from Employer for his services over a defined term;
WHEREAS, Employer desires to assure the continued services of Executive on
behalf of Employer on an objective and impartial basis and without distraction
or conflict of interest in the event of an attempt by any person to obtain
control of Employer;
WHEREAS, Employer recognizes that when faced with a proposal for a change
of control of Employer, Executive will have a significant role in helping the
Board of Directors assess the options and advising Employer's Board of Directors
(the "Board") on what is in the best interests of Employer and its shareholders,
and it is necessary for Executive to be able to provide this advice and counsel
without being influenced by the uncertainties of his own situation;
WHEREAS, Employer desires to provide fair and reasonable benefits to
Executive on the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS, Employer desires reasonable protection of its confidential
business and customer information which it has developed over the years at
substantial expense and assurance that Executive will not compete with Employer
for a reasonable period of time after termination of his employment with
Employer, except as otherwise provided herein.
NOW, THEREFORE, in consideration of these premises, the mutual covenants
and undertakings herein contained and the continued employment of Executive by
Employer as its President and Chief
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Executive Officer, each intending to be legally bound, covenant and agree as
follows:
1. EMPLOYMENT. Upon the terms and subject to the conditions set forth in
----------
this Agreement, Employer employs Executive as Employer's President and Chief
Executive Officer, and Executive accepts such employment.
2. POSITION AND DUTIES. Executive agrees to serve as the President and
-------------------
Chief Executive Officer of Employer and to perform such duties in that office as
may reasonably be assigned to him by the Board; provided, however, that such
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duties shall be performed in or from the offices of Employer currently located
at Moultrie, Georgia, and shall be of the same character as those previously
performed by Executive and generally associated with the office held by
Executive. Executive shall not be required to be absent from the location of
the principal executive offices of Employer on travel status or otherwise more
than 60 days in any calendar year. Employer shall not, without the written
consent of Executive, relocate or transfer Executive to a location more than 50
miles from his principal residence. Executive shall render services to Employer
as its President and Chief Executive Officer in substantially the same manner
and to substantially the same extent as Executive rendered his services to
Employer before the date hereof. While employed by Employer, Executive shall
devote substantially all his business time and efforts to Employer's business
and shall not engage in any other related business; provided, however, that
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Executive may use his discretion in fixing his hours and schedule of work
consistent with the proper discharge of his duties.
3. TERM. The term of this Agreement shall begin on the date hereof (the
----
"Effective Date") and, unless otherwise earlier terminated pursuant to Section 7
hereof, shall end on the date which is five years following the Effective Date;
provided, however, that such term shall be extended automatically for an
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additional year on each anniversary of the Effective Date unless either party
hereto gives written notice to the other party not to so extend within ninety
(90) days prior to an anniversary, in which case no further extension shall
occur and the term of this Agreement shall end one year subsequent to the
anniversary as of which the notice not to extend for an additional year is given
(such term, including any extension thereof, shall herein be referred to as the
"Term"); provided, however, that notwithstanding any notice by Employer not to
-------- -------
extend, the term of this Agreement shall not expire prior to the expiration of
twenty-four (24) months after the occurrence of a Change of Control (as
hereinafter defined). Notwithstanding the foregoing, this Agreement shall
automatically terminate (and the Term of this Agreement shall thereupon end)
without notice when Executive attains 68 years of age.
2
<PAGE>
4. COMPENSATION.
------------
(A) Executive shall receive an annual salary of ONE HUNDRED FIFTY THOUSAND
DOLLARS ($150,000) ("Base Compensation") payable at regular intervals in
accordance with Employer's normal payroll practices now or hereafter in effect.
Employer may consider and declare from time to time increases in the salary it
pays Executive and thereby increase the Base Compensation. Prior to (but not
after) a Change of Control, Employer may also declare decreases in the salary it
pays Executive if the operating results of Employer are significantly less
favorable than those for the fiscal year ended December 31, 1993, and Employer
makes similar decreases in the salary it pays to other executive officers of
Employer. After a Change of Control, Employer shall consider and declare salary
increases based upon the following standards:
a. Inflation;
b. Adjustments to the salaries of other senior management personnel; and
c. Past performance of Executive and the contribution which Executive
makes to the business and profits of Employer during the Term.
Any and all increases or decreases in Executive's salary pursuant to this
Section 4(A) shall cause the level of Base Compensation to be increased or
decreased by the amount of each such increase or decrease for purposes of this
Agreement. The increased or decreased level of Base Compensation as provided in
this Section 4(A) shall become the level of Base Compensation for the remainder
of the Term of this Agreement until there is a further increase or decrease in
Base Compensation as provided herein.
(B) In addition to the Base Compensation, Executive shall be awarded, for
each fiscal year during the Term, an annual bonus (an "Annual Bonus") either
pursuant to a bonus or incentive plan of Employer or otherwise on terms no less
favorable than those currently in effect as of the date hereof.
5. COMPENSATION PURSUANT TO PLANS. So long as Executive is employed by
------------------------------
Employer pursuant to this Agreement, he shall be included as a participant in
all present and future employee benefit, retirement and compensation plans
generally available to employees of Employer, consistent with his Base
Compensation and his position as President and Chief Executive Officer,
including, without limitation, Employer's pension plan, stock option plan, and
hospitalization, major medical, disability and group life insurance plans, each
of which Employer agrees to continue in effect on terms no less favorable than
those currently in effect as of the date hereof (as permitted by law) during the
Term of this Agreement (i) unless prior to a Change of Control the operating
results of
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Employer are significantly less favorable than those for the fiscal year ended
December 31, 1993, or (ii) unless (either before or after a Change of Control)
(a) changes in the accounting or tax treatment of such plans would adversely
affect Employer's operating results or financial condition in a material way,
and (b) the Board concludes that modifications to such plans need to be made to
avoid such adverse effects.
6. EXPENSES. So long as Executive is employed by Employer pursuant to
--------
this Agreement, Executive shall receive reimbursement from Employer for all
reasonable business expenses incurred in the course of his employment by
Employer, upon submission to Employer of written vouchers and statements for
reimbursement. So long as Executive is employed by Employer pursuant to the
terms of this Agreement, Employer shall continue in effect vacation policies
applicable to Executive no less favorable from his point of view than those
written vacation policies in effect on the date hereof. So long as Executive is
employed by Employer pursuant to this Agreement, Executive shall be entitled to
office space and working conditions no less favorable from his point of view
than were in effect for him on the date hereof and use of an automobile
(together with the payment of related expenses) on terms no less favorable than
those currently in effect as of the date hereof.
7. TERMINATION. Subject to the respective continuing obligations of the
-----------
parties, including, but not limited to, those set forth in Subsections 9(A),
9(B), 9(C) and 9(D) hereof, Executive's employment by Employer hereunder may be
terminated prior to the expiration of the Term of this Agreement as follows:
(A) Employer, by action of the Board and upon written notice to Executive,
may terminate Executive's employment with Employer immediately for
cause. For purposes of this Subsection 7(A), "cause" for termination
of Executive's employment shall exist (a) if Executive is convicted of
(from which no appeal may be taken), or pleads guilty to, any act of
fraud, misappropriation or embezzlement, or any felony, (b) if, in the
determination of the Board, Executive has engaged in gross or willful
misconduct materially damaging to the business of Employer (it being
understood, however, that neither conduct pursuant to Executive's
exercise of his good faith business judgment nor unintentional
physical damage to any property of Employer by Executive shall be a
ground for such a determination by the Board, or (c) if Executive has
failed, without reasonable cause, to follow reasonable written
instructions of the Board consistent with Executive's position as
President and Chief Executive Officer of Employer and, after written
notice from Employer of such failure, Executive at any time thereafter
again so fails.
4
<PAGE>
(B) Executive, by written notice to Employer, may terminate his employment
with Employer immediately for good reason. For purposes of this
Subsection 7(B), "good reason" shall mean a good faith determination
by Executive, in Executive's sole and absolute judgment, that any one
or more of the following events has occurred, without Executive's
express written consent, after a Change of Control:
(1) a change in Executive's reporting responsibilities, titles
or offices as in effect immediately prior to the Change of Control, or
any removal of the Executive from, or any failure to re-elect the
Executive to, any of such positions which has the effect of
diminishing Executive's responsibility or authority;
(2) a reduction by Employer in Executive's Base Compensation as
in effect immediately prior to the Change of Control or as the same
may be increased from time to time or a change in the eligibility
requirements or performance criteria under any bonus, incentive or
compensation plan, program or arrangement under which Executive is
covered immediately prior to the Change of Control which adversely
affects Executive;
(3) Employer requires Executive to be based anywhere other than
within fifty (50) miles of Executive's job location at the time of the
Change of Control, provided that if Executive's job location at such
time is not within fifty (50) miles of Employer's principal executive
offices, then Employer may thereafter require Executive to be based
within such fifty (50) mile radius without such event constituting
good reason hereunder;
(4) without replacement by a plan providing benefits to
Executive equal to or greater than those discontinued, the failure by
Employer to continue in effect, within its maximum stated term, any
pension, bonus, incentive, stock ownership, purchase, option, life
insurance, health, accident disability, or any other employee benefit
plan, program or arrangement in which Executive is participating at
the time of the Change of Control, or the taking of any action by
Employer that would adversely affect Executive's participation or
materially reduce Executive's benefits under any of such plans;
(5) the taking of any action by Employer that would materially
adversely affect the physical conditions existing at the time of the
Change of Control in or under
5
<PAGE>
which Executive performs his employment duties, provided that Employer
may take action with respect to such conditions after a Change of
Control so long as such conditions are at least commensurate with the
conditions in or under which an officer of Executive's status would
customarily perform his employment duties; or
(6) a material change in the fundamental business philosophy,
direction, and precepts of Employer and its subsidiaries, considered
as a whole, as the same existed prior to the Change of Control.
Any event described in this Subsection 7(B)(1) through (6) which occurs
prior to a Change of Control but which Executive reasonably demonstrates
(A) was at the request of a third party who has indicated an intention, or
taken steps reasonably calculated, to effect a Change of Control or (B)
otherwise arose in connection with, or in anticipation of, a Change of
Control which actually occurs, shall constitute good reason for purposes
hereof, notwithstanding that it occurred prior to a Change of Control.
(C) Executive, upon ninety (90) days written notice to Employer, may
terminate his employment with Employer without good reason.
(D) Executive's employment with Employer shall terminate in the event of
Executive's death or disability. For purposes of this Agreement,
"disability" shall be defined as Executive's inability by reason of
illness or other physical or mental incapacity to perform the duties
required by his employment for any consecutive One Hundred Eighty
(180) day period.
(E) A "Change of Control" of Employer shall mean any of the following
events:
(i) Unless approved by the affirmative vote of at least two-
thirds (2/3) of those members of the Board who are in office
immediately prior to the event(s) and who are not employees of
Employer:
a. the merger or consolidation of Employer with, or the
sale of all or substantially all of the assets of Employer to,
any person or entity or group of associated persons or entities;
or
b. the direct or indirect beneficial ownership, in the
aggregate, of securities of Employer representing twenty percent
(20%) or more of the total combined voting power of Employer's
then issued and outstanding securities by any person or entity,
or group of associated persons or
6
<PAGE>
entities acting in concert, not affiliated (within the meaning of
the Securities Act of 1993, as amended) with Employer as of the
date hereof; provided, however, that the Board may, at any time
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and in its sole discretion, increase the ownership percentage
threshold of this item b. to an amount not exceeding forty
percent (40%); or
c. the shareholders of Employer approve any plan or
proposal for the liquidation or dissolution of Employer.
(ii) A change in the composition of the Board at any time during
any consecutive twenty-four (24) month period such that the
"Continuity Directors" cease for any reason to constitute at least a
seventy percent (70%) majority of the Board. For purposes of this
Agreement, "Continuity Directors" means those members of the Board who
either:
a. were directors at the beginning of such consecutive
twenty-four (24) month period; or
b. were elected by, or on the nomination or recommendation
of, at least a two-thirds (2/3) majority of the Board.
8. COMPENSATION UPON TERMINATION. In the event of termination of
-----------------------------
Executive's employment with Employer pursuant to Section 7 hereof, compensation
shall continue to be paid by Employer to Executive as follows:
(A) In the event of termination pursuant to Subsection 7(A) or 7(C),
compensation provided for herein (including Base Compensation and an
Annual Bonus) shall continue to be paid, and Executive shall continue
to participate in the employee benefit, retirement, compensation plans
and other perquisites as provided in Sections 5 and 6 hereof, through
and including the Date of Termination (as hereinafter defined)
specified in the Notice of Termination (as hereinafter defined). Any
benefits payable under insurance, health, retirement and bonus plans
as a result of Executive's participation in such plans through such
date shall be paid when due under those plans.
(B) In the event of termination pursuant to Subsection 7(B), compensation
provided for herein (including Base Compensation and an Annual Bonus)
shall continue to be paid, and Executive shall continue to participate
in the employee benefit, retirement, compensation plans and other
perquisites as provided in Sections 5 and 6 hereof,
7
<PAGE>
through the Date of Termination specified in the Notice of
Termination. Any benefits payable under insurance, health, retirement
and bonus plans as a result of Executive's participation in such plans
through such date shall be paid when due under those plans. In
addition, Executive shall be entitled to continue to receive from
Employer for three (3) additional 12-month periods (i) his Base
Compensation at the rates in effect at the time of termination and
(ii) a Bonus Amount equal to the greater of (x) the most recent Annual
Bonus paid or payable to Executive or; if greater, the Annual Bonus
paid or payable for the full fiscal year ended prior to the fiscal
year during which a Change of Control occurred or (y) the average of
the Annual Bonuses paid or payable during the three full fiscal years
ended prior to the Date of Termination or, if greater, the three full
fiscal years ended prior to the Change of Control (or, in each case,
such lesser period for which Annual Bonuses were paid or payable to
Executive), and during such periods, Employer shall maintain in full
force and effect for the continued benefit of Executive each employee
welfare benefit plan (as such term is defined in the Executive
Retirement Income Security Act of 1974, as amended) in which Executive
was entitled to participate immediately prior to the date of his
termination, unless an essentially equivalent and no less favorable
benefit is provided by a subsequent employer of Executive. If the
terms of any employee welfare benefit plan of Employer or applicable
laws do not permit continued participation by Executive, Employer will
arrange to provide to Executive a benefit substantially similar to,
and no less favorable than, the benefit he was entitled to receive
under such plan at the end of the period of coverage.
(C) In the event of termination pursuant to Subsection 7(D), compensation
provided for herein (including Base Compensation and an Annual Bonus)
shall continue to be paid, and Executive shall continue to participate
in the employee benefit, retirement, and compensation plans and other
perquisites as provided in Sections 5 and 6 hereof, (i) in the event
of Executive's death, through the date of death, or (ii) in the event
of Executive's disability, through the Date of Termination specified
in the Notice of Termination. Any benefits payable under insurance,
health, retirement and bonus plans as a result of Executive's
participation in such plans through such date shall be paid when due
under those plans.
(D) Employer will permit Executive or his personal representative(s) or
heirs, during a period of three (3) months following Executive's
termination of employment by Employer for the reasons set forth in
Subsection 7(B) to
8
<PAGE>
require Employer, upon written request, to purchase all outstanding
stock options previously granted to Executive under any Employer stock
option plan then in effect whether or not such options are then
exercisable or have terminated at a cash purchase price equal to the
amount by which the aggregate "fair market value" of the shares
subject to such options exceeds the aggregate option price for such
shares. For purposes of this Agreement, the term "fair market value"
shall mean the higher of (1) the average of the highest asked prices
for the shares Employer's common stock in the over-the-counter market
as reported on the NASDAQ system if the shares are traded on such
system for the thirty (30) business days preceding such termination,
or (2) the average per share price actually paid for the most highly
priced 1% of the Employer's shares acquired in connection with the
Change of Control of Employer by any person or group acquiring such
control.
9. RESTRICTIVE COVENANTS. In order to induce Employer to enter into this
---------------------
Agreement, Executive hereby agrees as follows:
(A) While Executive is employed by Employer and for a period of two years
after termination of such employment for reasons other than those set
forth in Subsection 7(B) of this Agreement, Executive shall not
divulge or furnish any trade secrets (as defined in (S)16-8-13 of the
Official Code of Georgia Annotated) of Employer or any confidential
information acquired by him while employed by Employer concerning the
policies, plans, procedures or customers of Employer to any person,
firm or corporation, other than Employer or upon its written request,
or use any such trade secret or confidential information (which shall
at all times remain the property of Employer) directly or indirectly
for Executive's own benefit or for the benefit of any person, firm or
corporation other than Employer.
(B) For a period of two years after termination of Executive's employment
by Employer for reasons other than those set forth in Subsection 7(B)
of this Agreement, Executive shall not directly or indirectly provide
banking or bank-related services to, or solicit the banking or bank-
related business of, any customer of Employer at the time of such
provision of services or solicitation which Executive served either
alone or with others while employed by Employer in any city, town,
borough, township, village or other place in which Executive performed
services for Employer while employed by it, or assist any actual or
potential competitor of Employer to provide banking or bank-related
services to
9
<PAGE>
or solicit any such customer's banking or bank-related business in any
such place.
(C) While Executive is employed by Employer and for a period of one year
after termination of Executive's employment by Employer for reasons
other than those set forth in Subsection 7(B) of this Agreement,
Executive shall not, directly or indirectly, as principal, agent, or
trustee, or through the agency of any corporation, partnership, trade
association, agent or agency, engage in any banking or bank-related
business or venture which competes with the business of Employer as
conducted during Executive's employment by Employer within a radius of
fifty (50) miles of Employer's main office.
(D) If Executive's employment by Employer is terminated for reasons other
than those set forth in Subsection 7(B) of this Agreement, Executive
will turn over immediately thereafter to Employer all business
correspondence, letters, papers, reports, customers' lists, financial
statements, credit reports or other confidential information or
documents of Employer or its affiliates in the possession or control
of Executive, all of which writings are and will continue to be the
sole and exclusive property of Employer or its affiliates.
If Executive's employment by Employer is terminated during the Term of this
Agreement for reasons set forth in Subsection 7(B) of this Agreement, Executive
shall have no obligations to Employer with respect to trade secrets,
confidential information or noncompetition under this Section 9. Executive
acknowledges that irreparable loss and injury would result to Employer upon the
breach of any of the covenants contained in this Section 9 and that damages
arising out of such breach would be difficult to ascertain. Executive hereby
agrees that, in addition to all other remedies provided at law or at equity,
Employer may petition and obtain from a court of law or equity both temporary
and permanent injunctive relief to prevent a breach by Executive of any covenant
contained in this Section 9.
10. NOTICE OF TERMINATION AND DATE OF TERMINATION. Any termination of
---------------------------------------------
Executive's employment with Employer as contemplated by Section 7 hereof, except
in the circumstances of Executive's death, shall be communicated by written
"Notice of Termination" by the terminating party to the other party hereto. Any
"Notice of Termination" pursuant to Subsections 7(A), 7(B) or 7(D) shall
indicate the specific provisions of this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for such termination. For purposes of this Agreement, "Date of
Termination" shall mean: (i) if Executive's employment is terminated because of
disability, thirty (30) days after Notice of Termination is given (unless
Executive
10
<PAGE>
shall have returned to the performance of Executive's duties on a full-time
basis during such thirty (30) day period); or (ii) if Executive's employment is
terminated for cause, retirement, good reason or pursuant to Subsection 7(C)
hereof, the date specified in the Notice of Termination; provided, however, that
-------- -------
if within thirty (30) days after any such Notice of Termination is given, the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally resolved, either by mutual agreement of the
parties or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
11. EXCESS PARACHUTE PAYMENTS AND ONE MILLION DOLLAR DEDUCTION LIMIT.
----------------------------------------------------------------
(a) Notwithstanding anything contained herein to the contrary, if any
portion of the payments and benefits provided hereunder and benefits provided
to, or for the benefit of, Executive under any other plan or agreement of
Employer (such payments or benefits are collectively referred to as the
"Payments") would be subject to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
would be nondeductible by Employer pursuant to Section 280G of the Code, the
Payments shall be reduced (but not below zero) if and to the extent necessary so
that no portion of any Payment to be made or benefit to be provided to Executive
shall be subject to the Excise Tax or shall be nondeductible by Employer
pursuant to Section 280G of the Code (such reduced amount is hereinafter
referred to as the "Limited Payment Amount"). Unless Executive shall have given
prior written notice specifying a different order to Employer to effectuate the
Limited Payment Amount, Employer shall reduce or eliminate the Payments, by
first reducing or eliminating those payments or benefits which are not payable
in cash and then by reducing or eliminating cash payments, in each case in
reverse order beginning with payments or benefits which are to be paid the
farthest in time from the Determination (as hereinafter defined). Any notice
given by Executive pursuant to the preceding sentence shall take precedence over
the provisions of any other plan, arrangement or agreement governing Executive's
rights and entitlements to any benefits or compensation.
(b) An initial determination as to whether the Payments shall be
reduced to the Limited Payment Amount pursuant to the Code and the amount of
such Limited Payment Amount shall be made by an accounting firm at Employer's
expense selected by Employer which is designated as one of the six largest
accounting firms in the United States (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations and documentation to Employer and Executive
11
<PAGE>
within thirty (30) days of the Termination Date, if applicable, and if the
Accounting Firm determines that no Excise Tax is payable by Executive with
respect to a Payment or Payments, it shall furnish Executive with an opinion
reasonably acceptable to Executive that no Excise Tax will be imposed with
respect to any such Payment or Payments. Within ten (10) days of the delivery
of the Determination to Executive, Executive shall have the right to dispute the
Determination (the "Dispute"). If there is no Dispute, the Determination shall
be binding, final and conclusive upon Employer and Executive subject to the
application of Subsection 11(c) below.
(c) As a result of the uncertainty in the application of Sections
4999 and 280G of the Code, it is possible that the Payments to be made to, or
provided for the benefit of, Executive either have been made or will not be made
by Employer which, in either case, will be inconsistent with the limitations
provided in Section 11(a) (hereinafter referred to as an "Excess Payment" or
"Underpayment", respectively). If it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that an Excess Payment has
been made, such Excess Payment shall be deemed for all purposes to be a loan to
Executive made on the date Executive received the Excess Payment and Executive
shall repay the Excess Payment to Employer on demand (but not less than ten (10)
days after written notice is received by Executive), together with interest on
the Excess Payment at the "Applicable Federal Rate" (as defined in Section
1274(d) of the Code) from the date of Executive's receipt of such Excess Payment
until the date of such repayment. In the event that it is determined by (i) the
Accounting Firm, Employer (which shall include the position taken by Employer,
or together with its consolidated group, on its federal income tax return) or
the IRS, (ii) pursuant to a determination by a court, or (iii) upon the
resolution to Executive's satisfaction of the Dispute, that an Underpayment has
occurred, Employer shall pay an amount equal to the Underpayment to Executive
within ten (10) days of such determination or resolution, together with interest
on such amount at the Applicable Federal Rate from the date such amount would
have been paid to Executive until the date of payment.
(d) Notwithstanding anything contained herein to the contrary, if any
portion of the Payments would be nondeductible by Employer pursuant to Section
162(m) of the Code, the Payments to be made to Executive in any taxable year of
Employer shall be reduced (but not below zero) if and to the extent necessary so
that no portion of any Payment to be made or benefit to be provided to Executive
in such taxable year of Employer shall be nondeductible by Employer pursuant to
Section 162(m) of the Code. The amount by which any Payment is reduced pursuant
to the immediately preceding sentence, together with interest thereon at the
Applicable Federal Rate, shall be paid by Employer to Executive on or before the
fifth
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<PAGE>
business day of the immediately succeeding taxable year of Employer, subject to
the application of the limitations of the immediately preceding sentence and
this Section 11. Unless Executive shall have given prior written notice
specifying a different order to Employer to effectuate this Section 11, Employer
shall reduce or eliminate the Payments in any one taxable year of Employer by
first reducing or eliminating those payments or benefits which are not payable
in cash and then by reducing or eliminating cash payments, in each case in
reverse order beginning with payments or benefits which are to be paid the
farthest in time from the Section 162(m) Determination (as hereinafter defined).
Any notice given by Executive pursuant to the preceding sentence shall take
precedence over the provisions of any other plan, arrangement or agreement
governing Executive's rights and entitlements to any benefits or compensation.
(e) The determination as to whether the Payments shall be reduced
pursuant to Section 11(d) hereof and the amount of the Payments to be made in
each taxable year after the application of Section 11(d) hereof shall be made by
the Accounting Firm at Employer's expense. The Accounting Firm shall provide
its determination (the "Section 162(m) Determination"), together with detailed
supporting calculations and documentation to Employer and Executive within
thirty (30) days of the termination date specified in the Notice of Termination.
The Section 162(m) Determination shall be binding, final and conclusive upon
Employer and Executive.
12. LEGAL FEES AND EXPENSES. If a dispute arises regarding the
-----------------------
termination of Executive pursuant to Section 7 hereof or as to the
interpretation or enforcement of this Agreement and Executive obtains a final
judgment in his favor in a court of competent jurisdiction or his claim is
settled by Employer prior to the rendering of a judgment by such a court, all
reasonable legal fees and expenses incurred by Executive in contesting or
disputing any such termination or seeking to obtain or enforce any right or
benefit provided for in this Agreement or otherwise pursuing his claim shall be
paid by Employer, to the extent permitted by law.
13. PAYMENTS AFTER DEATH. Should Executive die after termination of his
--------------------
employment with Employer while any amounts are payable to him hereunder, this
Agreement shall inure to the benefit of and be enforceable by Executive's
executors, administrators, heirs, distributees, devisees and legatees and all
amounts payable hereunder shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if there is no
such designee, to his estate.
14. NOTICES. For purposes of this Agreement, notices and all other
-------
communications provided for herein shall be in writing and shall be deemed to
have been given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
13
<PAGE>
If to Executive: Kenneth J. Hunnicutt
766 Georgia Highway 111
Moultrie, Georgia 31768
If to Employer: ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
or to such address as either party hereto may have furnished to the other party
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
15. GOVERNING LAW. The validity, interpretation, and performance of this
-------------
Agreement shall be governed by the laws of the State of Georgia without giving
effect to the conflicts of laws principles thereof.
16. SUCCESSORS. Employer shall require any successor (whether direct or
----------
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of Employer, by agreement in form
and substance satisfactory to Executive, to expressly assume and agree to
perform this Agreement in the same manner and same extent that Employer would be
required to perform it if no such succession had taken place. Failure of
Employer to obtain such agreement prior to the effectiveness of any such
succession shall be a material intentional breach of this Agreement and shall
entitle Executive to terminate his employment with Employer for good reason
pursuant to Subsection 7(B) hereof. As used in this Agreement, "Employer" shall
mean Employer as hereinbefore defined and any successor to its business or
assets as aforesaid.
17. MODIFICATION. No provision of this Agreement may be modified, waived
------------
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Executive and Employer. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of dissimilar provisions or conditions at the same or
any prior subsequent time. No agreements or representation, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement.
18. SEVERABILITY. The invalidity or unenforceability of any provisions
------------
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement which shall remain in full force and effect.
14
<PAGE>
19. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement.
20. ASSIGNMENT. This Agreement is personal in nature and neither party
----------
hereto shall, without consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder except as provided in Sections 13 and 16
above. Without limiting the foregoing, Executive's right to receive
compensation hereunder shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise, other than a transfer by
his will or by the laws of descent or distribution as set forth in Section 13
hereof, and in the event of any attempted assignment or transfer contrary to
this Section 20, Employer shall have no liability to pay any amounts so
attempted to be assigned or transferred.
21. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, Executive has executed, sealed and delivered this
Agreement, and Employer has caused this Agreement to be executed, sealed and
delivered, all as of the day and year first above set forth.
ABC BANCORP
[CORPORATE SEAL]
Attest: By: /s/ Don L. Stripling
-------------------------------
Its: Vice President
/s/ Sara R. Hall
--------------------------
Secretary
/s/ Kenneth J. Hunnicutt (SEAL)
-------------------------------
KENNETH J. HUNNICUTT
15
<PAGE>
EXHIBIT 10.9
EXECUTIVE CONSULTING AGREEMENT
------------------------------
THIS EXECUTIVE CONSULTING AGREEMENT (the "Agreement"), is made and dated as
of September 20, 1994, by and between ABC BANCORP, a Georgia corporation (the
"Company"), and EUGENE M. VEREEN, JR., an individual resident of Moultrie,
Georgia ("Executive Consultant").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Executive Consultant has served for many years as the Chairman of
the Board and Chief Executive Officer of the Company;
WHEREAS, Executive Consultant has made valuable contributions to the
profitability and financial strength of the Company;
WHEREAS, the Company desires to encourage Executive Consultant to continue
to make valuable contributions to the Company's business operations upon his
retirement or resignation from the Company's Board of Directors (the "Board");
WHEREAS, the Company desires to provide fair and reasonable benefits to
Executive Consultant on the terms and subject to the conditions set forth in
this Agreement; and
WHEREAS, the Company desires reasonable protection of its confidential
business and customer information which it has developed over the years at
substantial expense and assurance that Executive Consultant will not compete
with the Company for a reasonable period of time after termination of his
services to the Company, except as otherwise provided herein.
NOW, THEREFORE, in consideration of these premises, the mutual covenants
and undertakings herein contained, each intending to be legally bound, Executive
Consultant and the Company covenant and agree as follows:
1. DUTIES.
------
In consideration of the payments to be made by the Company to Executive
Consultant as provided in Section 2 below, Executive Consultant shall during the
Term (as hereinafter defined) provide consulting services to the Company on such
matters pertaining to the business of the Company as may, from time to time, be
requested of him by the Chief Executive Officer of the Company. In this regard,
Executive Consultant shall be available throughout the Term at reasonable times,
and upon reasonable notice, to meet with the Board or the Chief Executive
Officer of the Company, or his designee, for the purposes of providing such
consulting services.
<PAGE>
Further, Executive Consultant shall, in connection with such consulting services
and subject to reasonable scheduling conflicts, attend such meetings, consult
with such persons and engage in such activities to promote the business and
image of the Company, as the Chief Executive Officer of the Company shall
reasonably request; provided, however, that Executive Consultant shall only
-------- -------
obligated to perform consulting services commensurate with his status as a
former chief executive officer of the Company and only those services which the
Chief Executive Officer of the Company believes, in good faith, to be fairly
requested and to be of benefit to the Company.
2. COMPENSATION.
------------
(A) For the consulting services to be provided by the Executive
Consultant hereunder, the Company shall pay to the Executive Consultant the
annual sum of [EIGHTY SEVEN THOUSAND FIVE HUNDRED DOLLARS ($87,500.00)], which
sum shall be paid in equal monthly installments. No reduction in the amount
payable to Executive Consultant hereunder shall be made on account of
compensation received by him from other employment.
(B) In performing his consulting services hereunder, Executive Consultant
shall be an independent contractor and shall not be, or be deemed to be, an
employee or agent of the Company. Except as may be specifically authorized in a
writing in advance by the Chief Executive Officer of the Company, Executive
Consultant shall have no right or authority to act for or on behalf of the
Company or otherwise to enter into any agreements or make any commitments with
third parties binding upon the Company.
(C) The amounts payable under Section 2(A) above shall be paid without
deduction for state or federal withholding taxes, social security or other like
sums; and, by virtue of his being an independent contractor hereunder, Executive
Consultant alone shall be responsible for the payment of all such taxes and sums
levied or assessed with respect to the amounts paid to Executive Consultant
hereunder; provided, however, if it is determined that Executive Consultant is
-------- -------
an employee for purposes of the Federal Insurance Contributions Act, federal or
state unemployment compensation taxes or other like taxes or levies,
notwithstanding his status as an independent contractor hereunder, Executive
Consultant shall not be liable for any such taxes or levies to the extent they
are by applicable law imposed on employers and not withheld from employee
compensation.
3. TERM. The term of this Agreement shall begin on the date of Executive
----
Consultant's retirement or resignation from the Board (the "Effective Date")
and, unless otherwise earlier terminated pursuant to Section 5 hereof, shall end
on the date which is six (6) years following the Effective Date (the "Term").
Notwithstanding the foregoing, this Agreement shall automatically
2
<PAGE>
terminate (and the Term of this Agreement shall thereupon end) without notice
when Executive Consultant attains 80 years of age.
4. EXPENSES. During the Term, Executive Consultant shall receive
--------
reimbursement from the Company for all reasonable business expenses incurred in
the course of the performance of his consulting services hereunder and which
have been approved in advance by the Company, upon submission to the Company of
written vouchers and statements for reimbursement.
5. TERMINATION. Subject to the respective continuing obligations of the
-----------
parties, including, but not limited to, those set forth in Subsections 6(A),
6(B), 6(C) and 6(D) hereof, this Agreement may be terminated as follows:
(A) the Company, by action of the Board and upon written notice to
Executive Consultant, may terminate this Agreement immediately for
cause. For purposes of this Subsection 5(A), "cause" for termination
of this Agreement hereunder shall exist (a) if the Executive
Consultant is convicted of (from which no appeal may be taken), or
pleads guilty to, any act of fraud, misappropriation or embezzlement,
or any felony, (b) if, in the determination of the Board the
Executive Consultant has engaged in gross or willful misconduct
materially damaging to the business of the Company (it being
understood, however, that unintentional physical damage to any
property of the Company by Executive Consultant shall not be a ground
for such a determination by the Board, or (c) if Executive Consultant
has failed, without reasonable cause, to follow reasonable written
instructions of the Board or the Chief Executive Officer consistent
with Executive Consultant's position and after written notice from
the Company of such failure, Executive Consultant at any time
thereafter again so fails.
(B) Executive Consultant, by written notice to the Company, may terminate
this Agreement immediately for good reason. For purposes of this
Subsection 5(B), "good reason" shall mean a good faith determination
by Executive Consultant, in Executive Consultant's sole and absolute
judgment, that any one or more of the following events has occurred,
without Executive Consultant's express written consent, after a
Change of Control (as hereinafter defined):
(1) a change in Executive Consultant's reporting
responsibilities as in effect immediately prior to the Change of
Control, which has the effect of diminishing Executive Consultant's
responsibility or authority;
3
<PAGE>
(2) the taking of any action by the Company that would
materially adversely affect the physical conditions existing at the
time of the Change of Control in or under which Executive Consultant
provides his services hereunder, provided that the Company may take
action with respect to such conditions after a Change of Control so
long as such conditions are at least commensurate with the conditions
in or under which someone of Executive Consultant's status would
customarily perform his duties; or
(3) a material change in the fundamental business philosophy,
direction, and precepts of the Company and its subsidiaries,
considered as a whole, as the same existed prior to the Change of
Control.
Any event described in this Subsection 5(B)(1) through (3) which occurs
prior to a Change of Control but which Executive Consultant reasonably
demonstrates (A) was at the request of a third party who has indicated an
intention, or taken steps reasonably calculated, to effect a Change of
Control or (B) otherwise arose in connection with, or in anticipation of,
a Change of Control which actually occurs, shall constitute good reason
for purposes hereof, notwithstanding that it occurred prior to a Change of
Control.
(C) Executive Consultant, upon thirty (30) days written notice to the
Company, may terminate this Agreement without good reason.
(D) This Agreement shall terminate in the event of Executive Consultant's
death or disability. For purposes of this Agreement, "disability"
shall be defined as Executive Consultant's inability by reason of
illness or other physical or mental incapacity to provide the
services to the Company hereunder for any consecutive One Hundred
Eighty (180) day period.
(E) A "Change of Control" of the Company shall mean any of the following
events:
(i) Unless approved by the affirmative vote of at least two-
thirds (2/3) of those members of the Board who are in office
immediately prior to the event(s) and who are not employees of the
Company:
a. the merger or consolidation of the Company with, or the
sale of all or substantially all of the assets of the Company
to, any person or entity or group of associated persons or
entities; or
4
<PAGE>
b. the direct or indirect beneficial ownership, in the
aggregate, of securities of the Company representing twenty
percent (20%) or more of the total combined voting power of the
Company's then issued and outstanding securities by any person
or entity, or group of associated persons or entities acting in
concert, not affiliated (within the meaning of the Securities
Act of 1993, as amended) with the Company as of the date hereof;
provided, however, that the Board may, at any time and in its
-------- -------
sole discretion, increase the ownership percentage threshold of
this item b. to an amount not exceeding forty percent (40%); or
c. the shareholders of the Company approve any plan or
proposal for the liquidation or dissolution of the Company.
(ii) A change in the composition of the Board at any time during
any consecutive twenty-four (24) month period such that the
"Continuity Directors" cease for any reason to constitute at least a
seventy percent (70%) majority of the Board. For purposes of this
Agreement, "Continuity Directors" means those members of the Board who
either:
a. were directors at the beginning of such consecutive
twenty-four (24) month period; or
b. were elected by, or on the nomination or recommendation
of, at least a two-thirds (2/3) majority of the Board.
6. RESTRICTIVE COVENANTS. In order to induce the Company to enter into
---------------------
this Agreement, Executive Consultant hereby agrees as follows:
(A) During the Term and for a period of two years thereafter except for a
termination of this Agreement for reasons other than those set forth
in Subsection 5(B) of this Agreement, Executive Consultant shall not
divulge or furnish any trade secrets (as defined in (S)16-8-13 of the
Official Code of Georgia Annotated) of the Company or any
confidential information acquired by him concerning the policies,
plans, procedures or customers of the Company to any person, firm or
corporation, other than the Company or upon its written request, or
use any such trade secret or confidential information (which shall at
all times remain the property of the Company) directly or indirectly
for Executive Consultant's own benefit or for the benefit of any
person, firm or corporation other than the Company.
5
<PAGE>
(B) For a period of two years after termination of this Agreement for
reasons other than those set forth in Subsection 5(B) of this
Agreement, Executive Consultant shall not directly or indirectly
provide banking or bank-related services to, or solicit the banking
or bank-related business of, any customer of the Company at the time
of such provision of services or solicitation which Executive
Consultant served either alone or with others during the Term in any
city, town, borough, township, village or other place in which
Executive Consultant performed services for the Company, or assist
any actual or potential competitor of the Company to provide banking
or bank-related services to or solicit any such customer's banking or
bank-related business in any such place.
(C) During the Term and for a period of one year after termination of
this Agreement for reasons other than those set forth in Subsection
5(B) of this Agreement, Executive Consultant shall not, directly or
indirectly, as principal, agent, or trustee, or through the agency of
any corporation, partnership, trade association, agent or agency,
engage in any banking or bank-related business or venture which
competes with the business of the Company as conducted during the
Term within a radius of fifty (50) miles of the Company's main
office.
(D) If this Agreement is terminated for reasons other than those set
forth in Subsection 5(B) of this Agreement, Executive Consultant will
turn over immediately thereafter to the Company all business
correspondence, letters, papers, reports, customers' lists, financial
statements, credit reports or other confidential information or
documents of the Company or its affiliates in the possession or
control of Executive Consultant, all of which writings are and will
continue to be the sole and exclusive property of the Company or its
affiliates.
If this Agreement is terminated during the Term of this Agreement for reasons
set forth in Subsection 5(B) of this Agreement, Executive Consultant shall have
no obligations to the Company with respect to trade secrets, confidential
information or noncompetition under this Section 6. Executive Consultant
acknowledges that irreparable loss and injury would result to the Company upon
the breach of any of the covenants contained in this Section 6 and that damages
arising out of such breach would be difficult to ascertain. Executive
Consultant hereby agrees that, in addition to all other remedies provided at law
or at equity, the Company may petition and obtain from a court of law or equity
both temporary and permanent injunctive relief to prevent a breach by Executive
Consultant of any covenant contained in this Section 6.
6
<PAGE>
7. NOTICE OF TERMINATION AND DATE OF TERMINATION. Any termination of
---------------------------------------------
this Agreement as contemplated by Section 5 hereof, except in the circumstances
of Executive Consultant's death, shall be communicated by written "Notice of
Termination" by the terminating party to the other party hereto. Any "Notice of
Termination" pursuant to Subsections 5(A), 5(B) or 5(D) shall indicate the
specific provisions of this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
such termination. For purposes of this Agreement, "Date of Termination" shall
mean: (i) if this Agreement is terminated because of Executive Consultant's
disability, thirty (30) days after Notice of Termination is given (unless
Executive Consultant shall have returned to the performance of Executive
Consultant's duties on a full-time basis during such thirty (30) day period); or
(ii) if this Agreement is terminated for cause, retirement, good reason or
pursuant to Subsection 5(C) hereof, the date specified in the Notice of
Termination; provided, however, that if within thirty (30) days after any such
-------- -------
Notice of Termination is given, the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, the
Date of Termination shall be the date on which the dispute is finally resolved,
either by mutual agreement of the parties or by a final judgment, order or
decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected).
8. LEGAL FEES AND EXPENSES. If a dispute arises regarding the
-----------------------
termination of this Agreement pursuant to Section 5 hereof or as to the
interpretation or enforcement of this Agreement and Executive Consultant obtains
a final judgment in his favor in a court of competent jurisdiction or his claim
is settled by the Company prior to the rendering of a judgment by such a court,
all reasonable legal fees and expenses incurred by the Company in contesting or
disputing any such termination or seeking to obtain or enforce any right or
benefit provided for in this Agreement or otherwise pursuing his claim shall be
paid by the Company, to the extent permitted by law.
9. PAYMENTS AFTER DEATH. Should Executive Consultant die after
--------------------
termination of this Agreement while any amounts are payable to him hereunder,
this Agreement shall inure to the benefit of and be enforceable by Executive
Consultant's executors, administrators, heirs, distributees, devisees and
legatees and all amounts payable hereunder shall be paid in accordance with the
terms of this Agreement to Executive Consultant's devisee, legatee or other
designee or, if there is no such designee, to his estate.
10. NOTICES. For purposes of this Agreement, notices and all other
-------
communications provided for herein shall be in writing and shall be deemed to
have been given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
7
<PAGE>
If to Executive Consultant: Eugene M. Vereen, Jr.
P.O. Box 340
Moultrie, Georgia 31776
If to the Company: ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
or to such address as either party hereto may have furnished to the other party
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
11. GOVERNING LAW. The validity, interpretation, and performance of this
-------------
Agreement shall be governed by the laws of the State of Georgia without giving
effect to the conflicts of laws principles thereof.
12. SUCCESSORS. The Company shall require any successor (whether direct
----------
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance satisfactory to Executive Consultant, to expressly assume and
agree to perform this Agreement in the same manner and same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a material intentional breach of this Agreement and
shall entitle the "Company" to terminate this Agreement for good reason pursuant
to Subsection 5(B) hereof. As used in this Agreement, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business or assets
as aforesaid.
13. MODIFICATION. No provision of this Agreement may be modified, waived
------------
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Executive Consultant and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of dissimilar provisions or conditions
at the same or any prior subsequent time. No agreements or representation, oral
or otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
14. SEVERABILITY. The invalidity or unenforceability of any provisions
------------
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement which shall remain in full force and effect.
8
<PAGE>
15. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement.
16. ASSIGNMENT. This Agreement is personal in nature and neither party
----------
hereto shall, without consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder except as provided in Sections 9 and 12
above. Without limiting the foregoing, Executive Consultant's right to receive
compensation hereunder shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise, other than a transfer by
his will or by the laws of descent or distribution as set forth in Section 9
hereof, and in the event of any attempted assignment or transfer contrary to
this Section 16, the Company shall have no liability to pay any amounts so
attempted to be assigned or transferred.
17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, Executive Consultant has executed, sealed and
delivered this Agreement, and the Company has caused this Agreement to be
executed, sealed and delivered, all as of the day and year first above set
forth.
ABC BANCORP
[CORPORATE SEAL]
Attest: By: /s/ Kenneth J. Hunnicutt
---------------------------------
Its: President
/s/ Sara R. Hall
----------------------------
Secretary
/s/ Eugene M. Vereen, Jr. (SEAL)
--------------------------------
EUGENE M. VEREEN, JR.
9
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<PAGE>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993
<PERIOD-START> JAN-01-1994 JAN-01-1993
<PERIOD-END> DEC-31-1994 DEC-31-1993
<CASH> 20,089 16,994
<INT-BEARING-DEPOSITS> 0 1,257
<FED-FUNDS-SOLD> 21,902 31,575
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 1,910 0
<INVESTMENTS-CARRYING> 44,595 45,937
<INVESTMENTS-MARKET> 43,024 46,856
<LOANS> 192,124 161,747
<ALLOWANCE> 3,757 3,571
<TOTAL-ASSETS> 292,799 268,616
<DEPOSITS> 256,869 238,225
<SHORT-TERM> 2,338 3,180
<LIABILITIES-OTHER> 3,142 2,575
<LONG-TERM> 0 4,677
<COMMON> 2,698 1,950
0 0
0 0
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<INTEREST-INVEST> 2,473 2,489
<INTEREST-OTHER> 838 930
<INTEREST-TOTAL> 21,328 19,697
<INTEREST-DEPOSIT> 7,603 7,476
<INTEREST-EXPENSE> 225 256
<INTEREST-INCOME-NET> 13,500 11,965
<LOAN-LOSSES> 638 1,191
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 11,547 10,535
<INCOME-PRETAX> 4,340 3,106
<INCOME-PRE-EXTRAORDINARY> 4,340 3,106
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,340 3,106
<EPS-PRIMARY> 1.40 1.39
<EPS-DILUTED> 1.40 1.39
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<LOANS-NON> 3,460 3,119
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