<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 31, 1996
-------------------------------
ABC Bancorp
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 0-16181 58-1456434
- -------------------------------------------------------------------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
incorporation) Number)
310 First Street, S.E., Moultrie, Georgia 31768
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (912) 890-1111
-----------------------------
<PAGE>
Item 2. Acquisition or Disposition of Assets
- ---------------------------------------------
ABC Bancorp, a Georgia corporation ("ABC"), and M & F Financial
Corporation, a Georgia corporation ("M & F"), entered into an Agreement and Plan
of Merger dated as of September 11, 1996 (the "Merger Agreement"), pursuant to
which M & F was merged with and into ABC (the "Merger"). The Merger was
consummated and became effective as of December 31, 1996 (the "Closing").
Pursuant to the Merger Agreement, shares of M & F (the "M & F Shares")
issued and outstanding immediately prior to the Merger were converted into the
right to receive consideration of approximately $6.3 million paid to holders of
the M & F Shares as of Closing in the form of an aggregate of 365,026 shares of
Common Stock, par value $1.00, of ABC, plus cash in lieu of fractional shares.
John C. Mosely, director and Assistant Treasurer of M & F and President and
Chief Executive Officer of its wholly-owned bank subsidiary, Merchants & Farmers
Bank, (the "Bank"), entered into an Employment Agreement with the Bank whereby
Mr. Mosely will continue as President of the Bank, effective as of the Closing.
The consideration for the Merger was determined as a result of negotiations
between ABC and M & F and was approved by the boards of directors of ABC and M &
F and by the shareholders of M & F. Prior to the Merger, neither ABC nor any of
its affiliates, directors or officers, nor any associate of any such director or
officer had any relationship with M & F.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
- ---------------------------------------------------------------------------
(a) Financial Statements of Business Acquired. Included in this Report are
-----------------------------------------
unaudited consolidated financial statements of ABC as of September 30, 1996,
together with the notes thereto, as well as the audited financial statements of
ABC as of December 31, 1995 and the year then ended which have been audited by
the independent accounting firm of Mauldin & Jenkins.
Included in this Report are unaudited consolidated financial statements of
M & F as of September 30, 1996, together with the notes thereto, as well as the
audited financial statements of M & F as of December 31, 1995 and the year then
ended which have been audited by the independent accounting firm of Mauldin &
Jenkins.
(b) Pro Forma Financial Information. The Unaudited Pro Forma Condensed
-------------------------------
Consolidated Financial Data included in this Report give effect to the merger
merger transaction described herein. M & F's information is combined with ABC
using the pooling of interests method of accounting.
The ABC historical amounts were derived from consolidated financial
statements of ABC included herein. The historical amounts of M & F were derived
from the consolidated financial statements of M & F included herein.
The Unaudited Pro Forma Condensed Consolidated Financial Data do not
purport to present the financial position of ABC had the merger transaction
described herein actually been consummated on the dates indicated. In addition,
the Unaudited Pro Forma Condensed Consolidated Financial
2
<PAGE>
Data are not necessarily indicative of the future results of operations of ABC
and should be read in conjunction with the historical financial statements of M
& F, including the notes thereto, included in this report.
(c) Exhibits. The following is a list of the Exhibits attached hereto or
--------
incorporated herein by reference.
Exhibit 2.1 Merger Agreement (incorporated by reference to Exhibit 10.13 to
ABC's Registration on Form S-4 (Registration No. 333-14649), filed
with the Commission on October 23, 1996).
Exhibit 10.1 Employment Agreement, John C. Mosely*
* Contained as an exhibit to the Merger Agreement
DOCUMENTS INCORPORATED BY REFERENCE
None.
3
<PAGE>
INDEX TO FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Financial Data:
<TABLE>
<S> <C>
Introductory Note........................................................ PF-i
ABC Bancorp and Subsidiaries Pro Forma Financial Statements to Reflect
Acquisitions Consummated in 1996
--Pro Forma Condensed Statements of Income.............................. PF-1
--Notes to Pro Forma Condensed Financial Statements..................... PF-2
ABC Bancorp and Subsidiaries Combined with M & F Financial Corporation
--Pro Forma Condensed Balance Sheet..................................... PF-3
--Pro Forma Condensed Statements of Income.............................. PF-4
--Notes to Pro Forma Condensed Financial Statements..................... PF-6
ABC Bancorp Historical Financial Data:
Consolidated Financial Statements--September 30, 1996 and 1995
(unaudited)
--Consolidated Balance Sheets........................................... F-1
--Consolidated Statements of Income..................................... F-2
--Consolidated Statements of Cash Flows................................. F-3
--Notes to Consolidated Financial Statements............................ F-4
Consolidated Financial Statements
--Independent Auditors' Report.......................................... F-7
--Consolidated Balance Sheets--December 31, 1995 and 1994............... F-9
--Consolidated Statements of Income--Years ended December 31, 1995, 1994
and 1993............................................................... F-10
--Consolidated Statements of Stockholders' Equity--Years ended December
31, 1995, 1994
and 1993............................................................... F-12
--Consolidated Statements of Cash Flows--Years ended December 31, 1995,
1994 and 1993.......................................................... F-13
--Notes to Consolidated Financial Statements............................ F-15
M & F Financial Corporation Historical Financial Data:
Consolidated Financial Statements--September 30, 1996 and 1995
(unaudited)
--Consolidated Balance Sheets........................................... F-40
--Consolidated Statements of Income..................................... F-41
--Consolidated Statements of Cash Flows................................. F-42
--Notes to Consolidated Financial Statements............................ F-43
Consolidated Financial Statements
--Independent Auditors' Report.......................................... F-44
--Consolidated Balance Sheets--December 31, 1995 and 1994............... F-45
--Consolidated Statements of Income--Years ended December 31, 1995 and
1994................................................................... F-46
--Consolidated Statements of Stockholders' Equity--Years ended December
31, 1995 and 1994...................................................... F-47
--Consolidated Statements of Cash Flows--Years ended December 31, 1995
and 1994............................................................... F-49
--Notes to Consolidated Financial Statements............................ F-51
</TABLE>
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Condensed Consolidated Financial Data included
herein give effect to the Merger. M & F's information is combined in this
Proxy Statement/Prospectus. M & F information is combined with ABC using the
pooling of interests method of accounting.
The ABC historical amounts were derived from consolidated financial
statements of ABC included herein. M & F historical amounts were derived from
the consolidated financial statements of M & F included herein.
The Unaudited Pro Forma Condensed Consolidated Financial Data do not purport
to present the financial position of ABC had the Merger actually been
consummated on the dates indicated. In addition, the Unaudited Pro Forma
Condensed Consolidated Financial Data are not necessarily indicative of the
future results of operations of ABC and should be read in conjunction with the
historical financial statements of ABC and M & F, including the notes thereto,
included herein.
PF-i
<PAGE>
ABC BANCORP AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS TO
REFLECT ACQUISITIONS CONSUMMATED IN 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
A pro forma balance sheet is not required since ABC's consolidated balance
sheet as of September 30, 1996 already reflects the acquisitions of Central
Bankshares, Inc. ("Central"), First National Financial Corporation ("First
National"), and Southland Bancorporation ("Southland"), all of which were
consummated prior to September 30, 1996.
The following unaudited pro forma condensed statements of income have been
prepared to reflect the acquisition of Southland, which acquisition was
accounted for as a purchase transaction, as if the acquisition had been
consummated at the beginning of each period presented. The financial data
included in the columns captioned "ABC and Subsidiaries Excluding Southland"
and "ABC Historical" include the financial data for Central and First
National, which acquisitions were accounted for as poolings of interests.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------------
ABC AND
SUBSIDIARIES PRO FORMA
EXCLUDING SOUTHLAND PRO FORMA COMBINED
SOUTHLAND HISTORICAL ADJUSTMENTS (NOTE A)
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income................ $28,900 $7,579 $(242)(1) $36,237
Interest expense............... 12,359 3,727 -- 16,086
------- ------ ----- -------
Net interest income............ 16,541 3,852 (242) 20,151
Provision for loan loss........ 908 106 -- 1,014
------- ------ ----- -------
Net interest income after pro-
vision for loan losses........ 15,633 3,746 (242) 19,137
Other income................... 3,789 1,010 -- 4,799
Other expense.................. 12,753 3,404 266 (2) 16,423
------- ------ ----- -------
Income from continuing opera-
tions before income taxes..... 6,669 1,352 (508) 7,513
Income taxes................... 2,205 535 (82)(3) 2,658
------- ------ ----- -------
Income from continuing opera-
tions (4)..................... $ 4,464 $ 817 $(426) $ 4,855
======= ====== ===== =======
Income per share from continu-
ing operations................ $ 0.96
=======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------
PRO FORMA
ABC SOUTHLAND PRO FORMA COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS (NOTE A)
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income................. $34,889 $9,033 $(323)(1) $43,599
Interest expense................ 14,525 4,775 -- 19,300
------- ------ ------ -------
Net interest income............. 20,364 4,258 (323) 24,299
Provision for loan loss......... 1,173 72 -- 1,245
------- ------ ------ -------
Net interest income after provi-
sion for loan losses........... 19,191 4,186 (323) 23,054
Other income.................... 4,395 1,582 -- 5,977
Other expense................... 15,674 4,101 354 (2) 20,129
------- ------ ------ -------
Income from continuing opera-
tions before income taxes...... 7,912 1,667 (677) 8,902
Income taxes.................... 2,460 643 (110)(3) 2,993
------- ------ ------ -------
Income from continuing opera-
tions (4)...................... $ 5,452 $1,024 $ (567) $ 5,909
======= ====== ====== =======
Income per share from continuing
operations..................... $ 1.21
=======
</TABLE>
PF-1
<PAGE>
ABC BANCORP AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS TO REFLECT ACQUISITIONS CONSUMMATED IN 1996
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
PRO FORMA ADJUSTMENTS:
(1) Loss of interest income on Federal funds sold used to fund the acquisition
of Southland using an average interest rate of 5.5%.
(2) Amortization of excess cost of assets acquired over their fair value at
date of acquisition using the straight-line method over a period of 15
years.
(3) Tax effect of pro forma adjustment for reduction in interest income using
a tax rate of 34%.
(4) The amortization of excess cost resulting from the acquisition of
Southland, accounted for as a purchase transaction, will have the effect
of decreasing income by $354,000 in each of the following five years. No
tax effect relating to the purchase adjustment will be recognized because
the Company is acquiring the stock of Southland and will not be allowed a
tax deduction for the amortization.
PF-2
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH M & F FINANCIAL CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet as of September
30, 1996 has been prepared to reflect the acquisition by ABC of 100% of M & F
after giving effect to the adjustments described in the notes to the pro forma
condensed financial statements. The acquisition will be accounted for as a
pooling of interests. These statements should be read in conjunction with the
other financial statements and notes thereto included in this Proxy Statement.
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
ABC M & F (NOTES A PRO FORMA
HISTORICAL HISTORICAL AND B) COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks......... $ 27,214 $ 2,701 $ -- $ 29,915
Federal funds sold.............. 9,270 -- -- 9,270
Investment securities........... 98,927 11,354 -- 110,281
Loans, net...................... 403,113 25,610 -- 428,723
Premises and equipment.......... 12,935 1,013 -- 13,948
Investment in M & F............. 3,513 (1)
-- (3,513)(2) --
Excess cost over fair value of
assets acquired................ 7,084 321 -- 7,405
Other assets.................... 18,100 1,122 -- 19,222
-------- ------- ------ --------
$576,643 $42,121 $ -- $618,764
======== ======= ====== ========
LIABILITIES AND EQUITY
Deposits........................ $478,407 $33,623 $ -- $512,030
Other liabilities............... 5,151 285 -- 5,436
Other borrowings................ 36,220 3,650 -- 39,870
Long-term debt.................. 4,324 1,050 -- 5,374
-------- ------- ------ --------
Total liabilities............. 524,102 38,608 -- 562,710
-------- ------- ------ --------
EQUITY
Common stock.................... 5,249 -- 319 (1) 5,568
Capital surplus................. 28,525 -- 3,194 (1) 31,719
Retained earnings............... 21,011 -- -- 21,011
Unrealized gains on securities
available for sale, net of tax-
es............................. (689) -- -- (689)
Treasury stock.................. (1,555) -- -- (1,555)
Equity of M & F................. -- 3,513 (3,513)(2) --
-------- ------- ------ --------
Total equity.................. 52,541 3,513 -- 56,054
-------- ------- ------ --------
$576,643 $42,121 $ -- $618,764
======== ======= ====== ========
</TABLE>
PF-3
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH M & F FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed statements of income have been
prepared to reflect the acquisition by ABC of 100% of M & F after giving
effect to the adjustments described in the notes to the pro forma condensed
financial statements. The acquisition will be accounted for as a pooling of
interests. These statements should be read in conjunction with the other
financial statements and notes thereto included in this Proxy Statement.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------------- -------------------------------
PRO FORMA PRO FORMA
ABC M & F COMBINED ABC M & F COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income......... $36,237 $2,585 $38,822 $25,553 $2,491 $28,044
Interest expense........ 16,086 1,314 17,400 10,603 1,257 11,860
------- ------ ------- ------- ------ -------
Net interest income..... 20,151 1,271 21,422 14,950 1,234 16,184
Provision for loan
loss................... 1,014 42 1,056 789 14 803
------- ------ ------- ------- ------ -------
Net interest income af-
ter provision for loan
losses................. 19,137 1,229 20,366 14,161 1,220 15,381
Other income............ 4,799 291 5,090 3,436 205 3,641
Other expense........... 16,423 946 17,369 11,700 917 12,617
------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes........... 7,513 574 8,087 5,897 508 6,405
Income taxes............ 2,858 163 2,821 1,949 132 2,081
------- ------ ------- ------- ------ -------
Income from continuing
operations............. $ 4,855 $ 411 $ 5,266 $ 3,948 $ 376 $ 4,324
======= ====== ======= ======= ====== =======
Income per share from
continuing operations.. $ 0.98 $ 0.90
======= =======
</TABLE>
PF-4
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH M & F FINANCIAL CORPORATION
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994 YEAR ENDED DECEMBER 31, 1993
------------------------------- ------------------------------- -------------------------------
PRO FORMA PRO FORMA PRO FORMA
ABC M & F COMBINED ABC M & F COMBINED ABC M & F COMBINED
HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A) HISTORICAL HISTORICAL (NOTE A)
---------- ---------- --------- ---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income........ $43,599 $3,342 $46,941 $27,743 $2,805 $30,548 $25,325 $2,557 $27,882
Interest expense....... 19,300 1,700 21,000 10,514 1,268 11,782 10,116 1,151 11,267
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income.... 24,299 1,642 25,941 17,229 1,537 18,766 15,209 1,406 16,615
Provision for loan
loss.................. 1,245 58 1,303 938 17 955 1,512 48 1,560
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income
after provision for
loan losses........... 23,054 1,584 24,638 16,291 1,520 17,811 13,697 1,358 15,055
Other income........... 5,977 278 6,255 4,047 226 4,273 3,767 244 4,011
Other expense.......... 20,129 1,246 21,375 14,762 1,188 15,930 13,634 1,100 14,734
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
income taxes and
cumulative effect..... 8,902 616 9,518 5,576 578 6,154 3,830 502 4,332
Income taxes........... 2,993 151 3,144 1,703 134 1,837 979 128 1,107
------- ------ ------- ------- ------ ------- ------- ------ -------
Income before minority
interest in net income
of subsidiary and
cumulative effect of
accounting change..... 5,909 485 6,374 3,873 444 4,317 2,851 374 3,225
Minority interest in
net income of
subsidiary -- -- -- -- -- -- -- 76 76
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations before
cumulative effect..... 5,909 465 6,374 3,873 444 4,317 2,851 298 3,149
Cumulative effect of
accounting change..... -- -- -- -- -- -- 346 -- 346
------- ------ ------- ------- ------ ------- ------- ------ -------
Income from continuing
operations............ $ 5,909 $ 465 $ 6,374 $ 3,873 $ 444 $ 4,317 $ 3,197 $ 298 $ 3,495
======= ====== ======= ======= ====== ======= ======= ====== =======
Income per share from
continuing
operations............ $ 1.23 $ 0.99 $ 0.89
======= ======= =======
</TABLE>
PF-5
<PAGE>
ABC BANCORP AND SUBSIDIARIES
COMBINED WITH M & F FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. The pro forma condensed balance sheet has been prepared assuming the
transaction was consummated on September 30, 1996. The pro forma statements
of income have been prepared assuming the transaction was consummated at
the beginning of each period presented.
B. The following pro forma adjustments have been applied to give effect to the
proposed transaction:
BALANCE SHEET:
(1) Issue of 319,203 shares of ABC common stock, $1 par value, in exchange
for 100% of the equity of M & F.
(2) Elimination of investment in M & F.
STATEMENTS OF INCOME:
(3) Pro forma income per common share is based on the average number of
shares that would have been outstanding during the respective periods.
PF-6
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 27,214 $ 28,351
Federal funds sold 9,270 47,485
Securities available for sale, at fair value 73,243 58,718
Securities held for investment, at cost 25,684 13,271
Loans 409,802 281,031
Less allowance for loan losses 6,689 5,184
-------- --------
Loans, net 403,113 275,847
-------- --------
Premises and equipment, net 12,935 9,529
Other assets 25,184 13,108
-------- --------
$576,643 $446,309
======== ========
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand $ 64,001 $ 69,661
interest-bearing demand 93,403 90,495
Savings 38,076 27,468
Time, $100,000 and over 68,427 52,029
Other time 214,500 154,304
-------- --------
Total deposits 478,407 393,957
Notes payable 4,324 --
Securities sold under repurchase agreements 701 1,887
Other short term borrowings 35,519 2,600
Other liabilities 5,151 4,236
-------- --------
Total liabilities 524,102 402,680
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $1; 15,000,000 shares au-
thorized 5,249,419 and 4,703,919 shares issued,
respectively 5,249 4,704
Surplus 28,525 23,234
Retained earnings 21,011 17,048
Unrealized gain (losses) on securities available
for sale, net of taxes (689) 198
-------- --------
54,096 45,184
Less cost of 217,882 shares acquired for the
treasury (1,555) (1,555)
-------- --------
Total stockholders' equity 52,541 43,629
-------- --------
$576,643 $446,309
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-1
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $26,975 $21,616
Interest on taxable securities 3,429 2,630
Interest on nontaxable securities 477 395
Interest on Federal funds sold 801 912
--------- ---------
31,682 25,553
--------- ---------
INTEREST EXPENSE
Interest on deposits 13,083 10,330
Interest on securities sold under repurchase agreements
and other borrowings 697 273
--------- ---------
13,780 10,603
--------- ---------
Net interest income 17,902 14,950
PROVISION FOR LOAN LOSSES 985 789
--------- ---------
Net interst income after provision for loan losses 16,917 14,161
--------- ---------
OTHER INCOME
Service charges on deposit accounts 3,084 2,552
Other service charges, commissions and fees 883 484
Security transactions, net (12) --
Other 277 400
--------- ---------
4,232 3,436
--------- ---------
OTHER EXPENSES
Salaries and employee benefits 7,347 5,968
Equipment expense 1,196 898
Occupancy expense 868 1,020
Other operating expenses 4,502 3,814
--------- ---------
13,913 11,700
--------- ---------
Income before income taxes 7,236 5,897
APPLICABLE INCOME TAXES 2,429 1,949
--------- ---------
Net income $ 4,807 $ 3,948
========= =========
Income per common share $ 1.01 $ 0.89
========= =========
Average shares outstanding 4,778,543 4,453,410
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,807 $ 3,948
------- -------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 889 852
Amortization of intangible assets 872 225
Provision for loan losses 985 789
Other prepaids, deferrals and accruals, net (4,807) (2,404)
------- -------
Total adjustments (2,061) (538)
------- -------
Net cash provided by operating activities 2,746 3,410
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities 23,499 15,896
Purchase of investment securities (28,336) (16,366)
Proceeds from sales of securities available for sale 1,600 1,499
Decrease in Federal funds sold 38,215 1,353
Net increase in loans (48,310) (32,138)
Net cash paid for purchased subsidiary (3,888) --
Purchase of premises and equipment (1,441) (570)
------- -------
Net cash used in investing activities (18,661) (30,326)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (7,046) 20,519
Net decrease in repurchase agreements (1,186) (597)
Proceeds from short-term borrowings 21,119 5,774
Proceeds from long-term debt 4,000 --
Repayment of long-term debt (1,096) --
Dividends paid (1,179) (947)
Purchase of fractional shares (6) (3)
Proceeds from exercise of stock options of pooled
subsidiary 172 75
------- -------
Net cash provided by financing activities 14,778 24,821
------- -------
Net decrease in cash and due from banks (1,137) (2,095)
Cash and due from banks at beginning of period 28,351 23,093
------- -------
Cash and due from banks at end of period $27,214 $20,998
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
ABC BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. METHOD OF PRESENTATION
The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These financial statements and the notes
thereto should be read in conjunction with the annual financial statements and
the notes thereto for the years ended December 31, 1995 and 1994 included
elsewhere in this Proxy Statement/Prospectus.
All material intercompany balances and transactions have been eliminated.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial statements. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2. RECENT ACQUISITIONS
On June 21, 1996, the Company acquired all of the outstanding common stock
of Southland Bancorporation ("Southland") in exchange for 402,271 shares of
the Company's common stock and $5,880,392 in cash. The excess of purchase
price over net book value of assets acquired amounted to $5,310,222. The fair
value of assets acquired was deemed to approximate their recorded value;
therefore, the excess cost will be accounted for as goodwill and amortized
over a period of 15 years. Immediately following the merger, Southland was
liquidated and its wholly-owned subsidiary, Southland Bank, became a wholly-
owned subsidiary of the Company.
F-4
<PAGE>
The acquisition has been accounted for as a purchase transaction and,
accordingly, the operations of Southland Bank will be included in the
consolidated financial statements of the Company only from June 21, 1996, the
date of acquisition. Had the acquisition of Southland Bank occurred on January
1, 1995, pro forma unaudited consolidated results of operations (after
restatement for the poolings of interest described below) for the nine months
ended September 30, 1996 and 1995 would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
---------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net interest income $20,151 $18,510
Other income 4,799 4,664
Net income 4,855 4,689
Net income per share 0.96 0.97
</TABLE>
On July 31, 1996, the Company acquired all of the outstanding common stock
of Central Bankshares, Inc. ("Central") in exchange for 524,300 shares of the
Company's common stock and a nominal amount of cash in lieu of fractional
shares. Immediately following the merger, Central was liquidated and its
wholly-owned subsidiary, Central Bank & Trust, became a wholly-owned
subsidiary of the Company. On August 31, 1996, the Company acquired all of the
outstanding common stock of First National Financial Corporation ("First
National") in exchange for 725,774 shares of the Company's common stock and a
nominal amount of cash in lieu of fractional shares. Immediately following the
merger, First National was liquidated and its wholly-owned subsidiary, First
National Bank of South Georgia, became a wholly-owned subsidiary of the
Company.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 2. RECENT ACQUISITIONS (CONTINUED)
The acquisitions of Central and First National have been accounted for
as poolings of interests and, accordingly, all prior financial
statements have been restated to include the accounts and operations of
the pooled companies. Net interest income and net income of the
separate companies for periods preceding the mergers are summarized as
follows:
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS)
------------------------
Net interest income:
ABC $ 14,361 $ 11,758
Central 1,801 1,554
First National 1,740 1,638
---------- ----------
Combined $ 17,902 $ 14,950
========== ==========
Net income:
ABC $ 3,704 $ 3,184
Central 518 308
First National 585 456
---------- ----------
Combined $ 4,807 $ 3,948
========== ==========
NOTE 3. PENDING MERGER
The Company has entered into a definitive merger agreement with M & F
Financial Corporation, Donalsonville, Georgia whereby it would acquire
all of the outstanding common stock of M & F Financial Corporation in
exchange for the Company's common stock. The total merger consideration
will approximate $6 million. Total assets of M & F at September 30,
1996 were approximately $42 million. The merger is subject to approval
by M & F Financial Corporation shareholders and certain regulatory
authorities and the registration of the Company's common stock to be
issued in connection with the merger. As a result of the merger,
Merchants and Farmers Bank, a wholly-owned subsidiary of M & F
Financial Corporation, will become a wholly-owned subsidiary of the
Company. The merger will be accounted for as a pooling of interests.
F-6
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
To the Board of Directors
ABC Bancorp
Moultrie, Georgia
We have audited the accompanying consolidated balance sheets of ABC Bancorp
and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. 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 did not audit the
financial statements of First National Financial Corporation, which statements
reflect total assets of $53.7 million and $46.5 million as of December 31, 1995
and 1994, respectively, and total revenue of $4.6 million, $3.5 million and $2.8
million for the three years in the period ended December 31, 1995. These
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to data included for First National
Financial Corporation, is based solely on the report of the other auditors.
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, based upon our audits and the report of other auditors, 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, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
F-7
<PAGE>
================================================================================
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
/s/ Mauldin & Jenkins LLC
- ------------------------------------------
Albany, Georgia
January 24, 1996, except for Note 2 as to
which the date is August 31, 1996
F-8
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1995 1994
- ------ --------------- ------------
<S> <C> <C>
Cash and due from banks $ 28,351 $ 22,688
Federal funds sold 47,485 24,052
Securities available for sale, at fair value (Note 3) 58,718 18,562
Securities held to maturity, at cost (fair value $13,449
and $47,350) (Note 3) 13,271 49,209
Loans (Note 4) 281,031 250,180
Less allowance for loan losses 5,184 4,525
-------------- -------------
Loans, net 275,847 245,655
-------------- -------------
Premises and equipment, net (Note 5) 9,529 9,929
Other assets 13,108 12,105
-------------- -------------
$ 446,309 $ 382,200
============== =============
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits
Noninterest-bearing demand $ 69,661 $ 57,903
Interest-bearing demand 90,495 81,325
Savings 27,468 29,743
Time, $100,000 and over 52,029 36,008
Other time 154,304 132,237
-------------- -------------
Total deposits 393,957 337,216
Securities sold under repurchase agreements 1,887 2,338
Other short-term borrowings 2,600 -
Other liabilities 4,236 4,085
-------------- -------------
Total liabilities 402,680 343,639
-------------- -------------
Commitments and contingent liabilities (Note 9)
Stockholders' equity (Note 11)
Common stock, par value $1; 10,000,000 shares authorized,
4,703,919 and 3,794,794 shares issued, respectively 4,704 3,795
Capital surplus 23,234 24,061
Retained earnings 17,048 12,881
Unrealized gains (losses) on securities available for sale, net of taxes 198 (496)
------------- -------------
45,184 40,241
Less cost of shares acquired for the treasury,
217,882 and 183,412 shares, respectively (1,555) (1,680)
------------- -------------
Total stockholders' equity 43,629 38,561
------------- -------------
$ 446,309 $ 382,200
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
- --------------------------------------------------------------------------------
1995 1994 1993
-------- -------- --------
Interest Income
Interest and fees on loans $ 29,439 $ 23,234 $ 20,875
Interest on taxable securities 3,496 2,971 2,806
Interest on nontaxable securities 551 610 597
Interest on deposits in other banks 4 67 120
Interest on Federal funds sold 1,399 861 927
-------- -------- --------
34,889 27,743 25,325
Interest expense
Interest on deposits 14,160 10,277 9,857
Interest on securities sold under
repurchase agreements 77 68 18
Interest on other borrowings 288 169 241
-------- -------- --------
14,525 10,514 10,116
-------- -------- --------
Net interest income 20,364 17,229 15,209
Provision for loan losses (Note 4) 1,173 938 1,512
-------- -------- --------
Net interest income after provision
for loan losses 19,191 16,291 13,697
-------- -------- --------
Other income
Service charges on deposit accounts 3,449 3,228 3,069
Other service charges, commissions and fees 402 316 344
Net realized gains (losses) on sales of
securities available for sale (20) 2 -
Other 564 501 354
-------- -------- --------
4,395 4,047 3,767
-------- -------- --------
Other expenses
Salaries and employee benefits (Note 6) 7,898 7,256 6,608
Equipment expense 1,401 1,393 995
Occupancy expense 945 853 1,030
Amortization of intangible assets 289 289 300
Data processing fees 478 557 444
Directors fees 383 358 345
FDIC premiums 440 727 705
Other operating expenses (Note 7) 3,840 3,329 3,207
-------- -------- --------
15,674 14,762 13,634
-------- -------- --------
F-10
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Income before income taxes and cumulative
effect of accounting change $ 7,912 $ 5,576 $ 3,830
Applicable income taxes (Note 8) 2,460 1,703 979
----------------- ----------------- -----------------
Income before cumulative effect of
accounting change 5,452 3,873 2,851
Cumulative effect of change in method of accounting
for income taxes - - 346
----------------- ----------------- -----------------
Net income $ 5,452 $ 3,873 $ 3,197
================= ================= =================
Income per common share:
Income before cumulative effect of accounting change $ 1.22 $ 0.96 $ 0.79
Cumulative effect of accounting change - - 0.09
----------------- ----------------- -----------------
Net income (Note 1) $ 1.22 $ 0.96 $ 0.88
================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Capital
---------------------------------
Shares Par Value Surplus
------------ --------------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1992 3,055,918 $ 3,056 $ 16,534
Net income - - -
Cash dividends paid, $.29 per share - - -
Purchase and simultaneous retirement of common
stock of pooled subsidiary (4,457) (4) (26)
Purchase of 143,024 shares of treasury stock - - -
------------ --------------- ----------------
Balance, December 31, 1993 3,051,461 3,052 16,508
Net income - - -
Cash dividends declared, $.29 per share - - -
Purchase and simultaneous retirement of common
stock of pooled subsidiary (4,167) (4) (24)
Proceeds from sale of stock, net of stock offering expense 747,500 747 7,577
Net change in unrealized losses on securities available
for sale, net of taxes - - -
------------ --------------- ----------------
Balance, December 31, 1994 3,794,794 3,795 24,061
Net income - - -
Cash dividends declared, $.35 per share - - -
Cash dividends paid by pooled subsidiary - - -
Exercise of options by shareholders of pooled subsidiary 10,038 10 75
Four-for-three common stock split 899,087 899 (899)
Purchase of fractional shares - - (3)
Stock issued under stock option purchase plan
Net change in unrealized gains on securities available for sale,
net of taxes - - -
------------ --------------- ----------------
Balance, December 31, 1995 4,703,919 $ 4,704 $ 23,234
============ =============== ================
</TABLE>
See Notes to Consolidated Financial Statements.
F-12(a)
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
on Securities
Available
Retained for Sale,
Earnings Net of Taxes
-------------- -----------------
<S> <C> <C>
Balance, December 31, 1992 $ 7,367 $ -
Net income 3,197 -
Cash dividends paid, $.29 per share (672) -
Purchase and simultaneous retirement of common
stock of pooled subsidiary - -
Purchase of 143,024 shares of treasury stock - -
-------------- -----------------
Balance, December 31, 1993 9,892 -
Net income 3,873 -
Cash dividends declared, $.29 per share (884) -
Purchase and simultaneous retirement of common
stock of pooled subsidiary - -
Proceeds from sale of stock, net of stock offering expense - -
Net change in unrealized losses on securities available
for sale, net of taxes - (496)
-------------- -----------------
Balance, December 31, 1994 12,881 (496)
Net income 5,452 -
Cash dividends declared, $.35 per share (1,176) -
Cash dividends paid by pooled subsidiary (109) -
Exercise of options by shareholders of pooled subsidiary - -
Four-for-three common stock split - -
Purchase of fractional shares - -
Stock issued under stock option purchase plan
Net change in unrealized gains on securities available
for sale, net of taxes - 694
-------------- -----------------
Balance, December 31, 1995 $ 17,048 $ 198
============== =================
</TABLE>
F-12(b)
<PAGE>
<TABLE>
<CAPTION>
Treasury Stock
-----------------------------------
Shares Cost
------------- ---------------
<S> <C> <C>
Balance, December 31, 1992 40,388 $ (268)
Net income - -
Cash dividends paid, $.29 per share - -
Purchase and simultaneous retirement of common
stock of pooled subsidiary - -
Purchase of 143,024 shares of treasury stock 143,024 (1,412)
------------- ---------------
183,412 (1,680)
Balance, December 31, 1993 - -
Net income - -
Cash dividends declared, $.29 per share
Purchase and simultaneous retirement of common
stock of pooled subsidiary - -
Proceeds from sale of stock, net of stock offering expense - -
Net change in unrealized losses on securities available
for sale, net of taxes - -
------------- ---------------
Balance, December 31, 1994 183,412 (1,680)
Net income - -
Cash dividends declared, $.35 per share - -
Cash dividends paid by pooled subsidiary - -
Exercise of options by shareholders of pooled subsidiary - -
Four-for-three common stock split 61,137 -
Purchase of fractional shares - -
Stock issued under stock option purchase plan (26,667) 125
Net change in unrealized gains on securities available
for sale, net of taxes - -
------------- ---------------
Balance, December 31, 1995 217,882 $ (1,555)
============= ===============
</TABLE>
F-12(c)
<PAGE>
<TABLE>
<CAPTION>
Total
---------------
<S> <C>
Balance, December 31, 1992 $ 26,689
Net income 3,197
Cash dividends paid, $.29 per share (672)
Purchase and simultaneous retirement of common
stock of pooled subsidiary (30)
Purchase of 143,024 shares of treasury stock (1,412)
---------------
Balance, December 31, 1993 27,772
Net income 3,873
Cash dividends declared, $.29 per share (884)
Purchase and simultaneous retirement of common
stock of pooled subsidiary (28)
Proceeds from sale of stock, net of stock offering expense 8,324
Net change in unrealized losses on securities available
for sale, net of taxes (496)
---------------
Balance, December 31, 1994 38,561
Net income 5,452
Cash dividends declared, $.35 per share (1,176)
Cash dividends paid by pooled subsidiary (109)
Exercise of options by shareholders of pooled subsidiary 85
Four-for-three common stock split -
Purchase of fractional shares (3)
Stock issued under stock option purchase plan 125
Net change in unrealized gains on securities available
for sale, net of taxes 694
---------------
Balance, December 31, 1995 $ 43,629
===============
</TABLE>
F-12(d)
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,452 $ 3,873 $ 3,197
---------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,287 1,212 1,048
Amortization of intangible assets 268 268 279
Provision for loan losses 1,173 938 1,512
Provision for deferred taxes (213) 29 (171)
Net realized (gains) losses on securities availabe for sale 20 (2) -
Write-downs of other real estate owned - 53 -
(Increase) decrease in interest receivable (970) (886) 66
Increase (decrease) in interest payable 399 189 (117)
Increase in taxes payable 74 108 169
Other prepaids, deferrals and accruals, net (698) (575) (687)
--------- --------- -------
Total adjustments 1,340 1,334 2,099
--------- --------- -------
Net cash provided by operating activities 6,792 5,207 5,296
--------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest-bearing deposits in banks - 1,257 200
Purchases of securities available for sale (30,541) (9,822) -
Purchases of securities held to maturity (1,654) (11,065) (33,515)
Proceeds from maturities of securities available for sale 7,516 1,250 -
Proceeds from maturities of securities held to maturity 16,597 12,136 17,483
Proceeds from sales of securities available for sale 4,637 3,303 -
(Increase) decrease in Federal funds sold (23,433) 12,695 8,590
Increase in loans, net (31,365) (37,928) (17,812)
Purchase of premises and equipment (821) (2,443) (819)
Proceeds from the sale of premises and equipment 24 22 26
--------- --------- -------
Net cash used in investing activities (59,040) (30,595) (25,847)
--------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 56,741 25,675 13,237
Increase (decrease) in repurchase agreements (451) (842) 3,117
Proceeds from other borrowings 2,600 - 1,474
Repayment of long-term debt - (4,739) (15)
Dividends paid (1,186) (645) (672)
Proceeds from stock offering, net - 8,324 -
Proceeds from sale of stock of pooled subsidiary 85 - -
Proceeds from exercise of stock options 125 - -
Purchase of fractional shares (3) - -
Purchase of shares of stock for the treasury - - (1,412)
Purchase of treasury stock of pooled subsidiary - (28) (30)
--------- -------- -------
Net cash provided by financing activities 57,911 27,745 15,699
--------- -------- -------
</TABLE>
F-13
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net increase (decrease) in cash and due from banks $ 5,663 $ 2,357 $ (4,852)
Cash and due from banks at beginning of year 22,688 20,331 25,183
-------- -------- --------
Cash and due from banks at end of year $ 28,351 $ 22,688 $ 20,331
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 14,126 $ 10,325 $ 10,233
Income taxes $ 2,599 $ 1,566 $ 635
NONCASH TRANSACTIONS
Net change in unrealized gains (losses)
on securities available for sale $ 1,048 $ (738) $ -
Property transferred from premises and equipment
to other real estate owned $ - $ 103 $ -
Dividends declared $ 338 $ 239 $ -
</TABLE>
See Notes to Consolidated Financial Statements.
F-14
<PAGE>
ABC BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
ABC Bancorp (the "Company") is a multi-bank holding
company whose business is presently conducted by its
subsidiary banks (the "Banks"). Through its Banks, the
Company operates a full service banking business and
offers a broad range of retail and commercial banking
services to its customers located in a market area which
includes South Georgia and Southeast Alabama. The Company
and the Banks are subject to the regulations of certain
Federal and state agencies and are periodically examined
by those regulatory agencies.
The accounting and reporting policies of the Company
conform to generally accepted accounting principles and
general practices within the financial services industry.
In preparing the financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date
of the balance sheet and revenues and expenses for the
period. Actual results could differ from those estimates.
The Company's consolidated financial statements include
the accounts of the Company and its subsidiaries. All
significant intercompany transactions and accounts have
been eliminated in consolidation. Results of operations of
purchased banks are included from the dates of
acquisition. Following the purchase method of accounting,
the assets and liabilities of purchased banks are stated
at estimated fair values at the date of acquisition.
The principles which significantly affect the
determination of financial position, results of operations
and cash flows are summarized below.
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 Banks, 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.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities Available for Sale
Securities classified as available for sale are those debt
securities that the Company intends to hold for an
indefinite period of time, but not necessarily to maturity.
Any decision to sell a security classified as available for
sale would be based on various factors, including
significant movements in interest rates, changes in the
maturity mix of the Company's assets and liabilities,
liquidity needs, regulatory capital considerations and other
similar factors. Securities available for sale are carried
at fair value. Unrealized gains or losses are reported as
increases or decreases in stockholders' equity, net of the
related deferred tax effect. Realized gains or losses,
determined on the basis of the cost of specific securities
sold, are included in earnings.
Securities Held to Maturity
Securities classified as held to maturity are those debt
securities the Company has both the intent and ability to
hold to maturity regardless of changes in market conditions,
liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed
by the interest method over their contractual lives. The
sale of a security within three months of its maturity date
or after collection of at least 85 percent of the principal
outstanding at the time the security was acquired is
considered a maturity for purposes of classification and
disclosure.
A decline in the fair value below cost of any available for
sale or held to maturity security that is deemed other than
temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans and Interest Income
Loans are stated at principal amounts outstanding less
unearned income and the allowance for loan losses. Interest
income on loans is credited to income based on the principal
amount outstanding at the respective rate of interest except
for add-on interest on certain instalment loans for which
interest is recognized on the sum-of-the-months method.
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.
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.
The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are
charged against the allowance for loan losses when
management believes that collectibility of the principal is
unlikely. The allowance is an amount that management
believes will be adequate to absorb estimated losses on
existing loans that may become uncollectible, based on
evaluation of the collectibility of loans and prior loss
experience. This evaluation also takes into consideration
such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may
affect the borrower's ability to pay. Certain estimates are
susceptible to change in the near term. Such estimates
include the creditworthiness of significant borrowers and
the collateral value of delinquent loans. While management
uses the best information available to make its evaluation,
future adjustments to the allowance may be necessary if
there are significant changes in economic conditions. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's
allowance for loan losses, and may require the Company to
record additions to the allowance based on their judgment
about information available to them at the time of their
examinations.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans and Interest Income (Continued)
Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's
effective interest rate or, as a practical 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 the terms of the loan agreement. Accrual
of interest on an impaired loan is discontinued when
management believes, after considering collection efforts
and other factors, that the borrower's financial condition
is such that collection of interest is doubtful. Cash
collections on impaired loans are credited to the loans
receivable balance, and no interest income is recognized on
those loans until the principal balance has been collected.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the
straight-line method over the following estimated useful
lives:
Years
-----------
Buildings and improvements 15-40
Furniture and equipment 5-7
Other Real Estate Owned
Other real estate owned (OREO) represents properties
acquired through foreclosure or other proceedings. OREO is
held for sale and is recorded at the lower of the recorded
amount of the loan or fair value of the properties less
estimated costs of disposal. Any write-down to fair value at
the time of transfer to OREO is charged to the allowance for
loan losses. Property is evaluated regularly to ensure the
recorded amount is supported by its current fair value and
valuation allowances to reduce the carrying amount to fair
value less estimated costs to dispose are recorded as
necessary. Subsequent decreases in fair value and increases
in fair value, up to the value established at foreclosure,
are recognized as charges or credits to noninterest expense.
OREO is reported net of allowance for losses in the
Company's financial statements.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit
carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets
are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some
portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted
for the effect of changes in tax laws on the date of
enactment.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107,
"Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about
financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not
available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In
that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of
the instrument. Statement No. 107 excludes certain financial
instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent
the underlying value of the Company.
The following methods and assumptions were used by the
Company in estimating the fair value of its financial
instruments:
Carrying amounts approximate fair values for the
following instruments:
Cash and due from banks
Federal funds sold
Securities available for sale
Variable rate loans that reprice frequently
Credit card loans and equity line loans
Variable rate money market accounts
Variable rate certificates of deposit
Short-term borrowing
Accrued interest receivable
Accrued interest payable
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments (Continued)
Quoted market prices, where available, or if not available,
based on quoted market prices of comparable instruments for
securities held to maturity.
Discounted cash flows using interest rates currently being
offered on instruments with similar terms and with similar
credit quality:
All loans except variable rate loans described above
Fixed rate certificates of deposit
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. The Company has determined that such instruments do
not have a distinguishable fair value and no fair value has
been assigned to these instruments.
Earnings Per Share
Earnings per share are calculated on the basis of the
weighted average number of shares outstanding. All per share
data for prior years have been adjusted to reflect the four-
for-three stock split effected in the form of a stock
dividend to shareholders of record as of July 17, 1995.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. RECENT ACQUISITIONS
On June 21, 1996, the Company acquired all of the outstanding
common stock of Southland Bancorporation ("Southland") in
exchange for 402,271 shares of the Company's common stock and
$5,880,392 in cash. The excess of purchase price over net book
value of assets acquired amounted to $5,310,222. The fair
value of assets acquired was deemed to approximate their
recorded value; therefore, the excess cost will be accounted
for as goodwill and amortized over a period of 15 years.
Immediately following the merger, Southland was liquidated and
its wholly-owned subsidiary, Southland Bank, became a
wholly-owned subsidiary of the Company.
The acquisition has been accounted for as a purchase
transaction and, accordingly, the operations of Southland Bank
will be included in the consolidated financial statements of
the Company only from June 21, 1996, the date of acquisition.
The consolidated financial statements of the Company for the
years ended December 31, 1995, 1994 and 1993 do not include
the operations of Southland Bank. Had the acquisition of
Southland Bank occurred on January 1, 1993, pro forma
unaudited consolidated results of operations (after
restatement for the poolings of interest described below) for
the years ended December 31, 1995, 1994 and 1993 would have
been as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1995 1994 1993
----------------- --------------- ---------------
<S> <C> <C> <C>
Net interest income $ 24,299 $ 20,703 $ 18,603
Other income 5,978 5,354 5,949
Net income 5,887 3,307 3,270
Net income per share 1.18 0.72 0.78
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. RECENT ACQUISITIONS (Continued)
On July 31, 1996, the Company acquired all of the outstanding
common stock of Central Bankshares, Inc. ("Central") in
exchange for 523,826 shares of the Company's common stock and
a nominal amount of cash in lieu of fractional shares.
Immediately following the merger, Central was liquidated and
its wholly-owned subsidiary, Central Bank & Trust, became a
wholly-owned subsidiary of the Company. On August 31, 1996,
the Company acquired all of the outstanding common stock of
First National Financial Corporation ("First National") in
exchange for 725,774 shares of the Company's common stock and
a nominal amount of cash in lieu of fractional shares.
Immediately following the merger, First National was
liquidated and its wholly-owned subsidiary, First National
Bank of South Georgia, became a wholly-owned subsidiary of the
Company.
The acquisitions of Central and First National have been
accounted for as poolings of interests and, accordingly, all
prior financial statements have been restated to include the
accounts and operations of the pooled companies. Net interest
income and net income of the separate companies for periods
preceding the mergers are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
Net interest income:
ABC $ 16,030 $ 13,500 $ 11,965
Central 2,182 2,005 1,911
First National 2,152 1,724 1,333
----------- ----------- ----------
Combined $ 20,364 $ 17,229 $ 15,209
=========== =========== ==========
Net income:
ABC $ 4,341 $ 3,100 $ 2,638
Central 499 457 321
First National 612 316 238
----------- ----------- ----------
Combined $ 5,452 $ 3,873 $ 3,197
=========== =========== ==========
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENTS IN SECURITIES
Effective January 1, 1994, the Bank adopted Financial
Accounting Standards Board Statement No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." Upon
adoption, the Company transferred $18,083,139 of marketable
securities from securities held to maturity to securities
available for sale. The securities available for sale were
marked to fair value resulting in a net unrealized gain of
$144,469 which was included in stockholders' equity at
$91,274, net of related taxes of $53,195.
Under special provisions adopted by the Financial Accounting
Standards Board in October 1995, the Company transferred
$21,180,546 from securities held to maturity to securities
available for sale on December 31, 1995, resulting in a net
unrealized gain of $131,346 which was included in
stockholders' equity at $86,689, net of related taxes of
$44,657.
The amortized cost and approximate fair values of investments
in securities at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses
-------------- -------------- -------------
(Dollars in Thousands)
--------------------------------------------------
<S> <C> <C> <C>
Securities Available for Sale
December 31, 1995:
U. S. Government and agency securities $ 50,211 $ 381 $ (171)
Mortgage-backed securities 7,897 126 (8)
Other securities 300 - (18)
--------- ----------- ----------
$ 58,408 $ 507 $ (197)
========= =========== ==========
December 31, 1994:
U. S. Government and agency securities $ 18,093 $ - $ (669)
Mortgage-backed securities 907 4 (33)
Other securities 300 - (40)
--------- ----------- ----------
$ 19,300 $ 4 $ (742)
========= =========== ==========
Securities Held to Maturity
December 31, 1995:
State and municipal securities $ 10,269 $ 258 $ (65)
Mortgage-backed securities 3,002 - (15)
--------- ----------- ----------
$ 13,271 $ 258 $ (80)
========= =========== ==========
December 31, 1994:
U. S. Government and agency securities $ 33,352 $ 19 $ (1,235)
State and municipal securities 9,819 114 (471)
Mortgage-backed securities 6,038 22 (308)
--------- ----------- ----------
$ 49,209 $ 155 $ (2,014)
========= =========== ==========
<CAPTION>
Fair
Value
--------------------
(Dollars in Thousands)
--------------------
<S> <C>
Securities Available for Sale
December 31, 1995:
U. S. Government and agency securities $ 50,421
Mortgage-backed securities 8,015
Other securities 282
-----------
$ 58,718
===========
December 31, 1994:
U. S. Government and agency securities $ 17,424
Mortgage-backed securities 878
Other securities 260
-----------
$ 18,562
===========
Securities Held to Maturity
December 31, 1995:
State and municipal securities $ 10,462
Mortgage-backed securities 2,987
-----------
$ 13,449
===========
December 31, 1994:
U. S. Government and agency securities $ 32,136
State and municipal securities 9,462
Mortgage-backed securities 5,752
-----------
$ 47,350
===========
</TABLE>
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENTS IN SECURITIES (Continued)
Gross realized gains and gross realized losses from sales of
securities were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1995 1994
---------------- -----------------
(Dollars in Thousands)
---------------------------------------
<S> <C> <C>
Gross realized gains $ - $ 2
Gross realized losses (20) -
---------------- -----------------
Net realized gains $ (20) $ 2
================ =================
</TABLE>
There were no sales of securities during 1993.
The amortized cost and fair value of securities as of December
31, 1995 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 for Sale
----------------------------------
Amortized Fair
Cost Value
--------------- -------------
(Dollars in Thousands)
----------------------------------
Due in one year or less $ 15,288 $ 15,316
Due from one year to five years 34,418 34,600
Due from five to ten years 505 505
Due after ten years - -
Mortgage-backed securities 7,897 8,015
Marketable equity securities 300 282
------------ -------------
$ 58,408 $ 58,718
============ =============
<CAPTION>
Securities Held to Maturity
----------------------------------
Amortized Fair
Cost Value
--------------- ------------
(Dollars in Thousands)
----------------------------------
<S> <C> <C>
Due in one year or less $ 727 $ 724
Due from one year to five years 2,734 2,748
Due from five to ten years 5,722 5,891
Due after ten years 1,086 1,099
Mortgage-backed securities 3,002 2,987
Marketable equity securities - -
------------ ------------
$ 13,271 $ 13,449
============ ============
</TABLE>
Securities with a carrying value of $40,592,070 and
$33,793,889 at December 31, 1995 and 1994, respectively, were
pledged to secure public deposits and for other purposes.
F-25
<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,
-------------------------------------
1995 1994
---------------- -------------
(Dollars in Thousands)
-------------------------------------
<S> <C> <C>
Commercial and financial $ 45,671 $ 37,374
Agricultural 18,527 20,031
Real estate - construction 3,577 3,688
Real estate - mortgage, farmland 41,420 36,485
Real estate - mortgage, commercial 52,443 45,702
Real estate - mortgage, residential 68,554 59,641
Consumer instalment loans 50,020 45,891
Other 819 1,368
------------- -------------
281,031 250,180
Allowance for loan losses (5,184) (4,525)
------------- -------------
$ 275,847 $ 245,655
============= =============
</TABLE>
At December 31, 1995, 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 $11,103,000. 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,
----------------------------------------
1995 1994
---------------- ----------------
(Dollars in Thousands)
----------------------------------------
<S> <C> <C>
Balance, beginning of year $ 10,115 $ 10,703
Advances 8,594 7,560
Repayments (7,849) (7,096)
Transactions due to changes in directors 243 (1,052)
------------- -------------
Balance, end of year $ 11,103 $ 10,115
============= =============
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1995 1994 1993
----------------- ---------------- ----------------
(Dollars in Thousands)
------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 4,525 $ 4,273 $ 4,585
Provision charged to operations 1,173 938 1,512
Loans charged off (954) (1,237) (2,916)
Recoveries 440 551 1,092
-------------- ------------- -------------
Balance, end of year $ 5,184 $ 4,525 $ 4,273
============== ============= =============
</TABLE>
Information with respect to impaired loans as of and for the
year ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
(Dollars in
Thousands)
--------------
<S> <C>
Loans receivable for which there is a related allowance
for credit losses $ 1,006
Loans receivable for which there is no related
allowance for credit losses 1,253
--------------
Total impaired loans $ 2,259
==============
Allowance provided for impaired loans included in the
allowance for loan losses $ 163
==============
Average balance $ 3,089
==============
Interest income recognized $ 161
==============
</TABLE>
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Loans on which the accrual of interest had been discontinued
or reduced amounted to $3,868,273 at December 31, 1994. The
reduction in interest income associated with nonaccrual and
renegotiated loans for 1994 and 1993 is as follows. For 1995,
nonaccrual loans have been included in the impaired loan
information above.
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1994 1993
---------------- -----------------
(Dollars in Thousands)
----------------------------------------
<S> <C> <C>
Income in accordance with original loan terms $ 324 $ 201
Income recognized 37 9
------------- --------------
$ 287 $ 192
============= ==============
</TABLE>
NOTE 5. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1994
---------------- ----------------
(Dollars in Thousands)
----------------------------------------
<S> <C> <C>
Land $ 2,160 $ 2,161
Buildings 7,096 6,921
Equipment 7,858 8,067
Construction in progress 182 -
------------- -------------
17,296 17,149
Accumulated depreciation (7,767) (7,220)
------------- -------------
$ 9,529 $ 9,929
============= =============
</TABLE>
Depreciation expense for the years ended December 31, 1995,
1994 and 1993 was $1,161,010, $1,014,903 and $732,811,
respectively.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. EMPLOYEE BENEFIT PLANS
The Company and its 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 1995, 1994 and 1993
amounted to $585,766, $537,254 and $513,560, respectively.
NOTE 7. 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 $54,724, $81,295 and
$83,459 for 1995, 1994 and 1993, respectively, and is included
in other operating expenses.
NOTE 8. INCOME TAXES
The total income taxes in the consolidated statements of
income are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1995 1994 1993
----------- ------------ -----------
(Dollars in Thousands)
-----------------------------------------------------
<S> <C> <C> <C>
Current $ 2,673 $ 1,675 $ 912
Deferred (213) 29 175
Benefit of loss carryforward - (1) (108)
----------- ------------ -----------
$ 2,460 $ 1,703 $ 979
=========== ============ ===========
</TABLE>
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. 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,
----------------------------------------------------------------------------------------
1995 1994 1993
---------------------- -------------------------- ----------------------
Amount Percent Amount Percent Amount Percent
-------- --------- -------- --------- -------- ---------
(Dollars in Thousands)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate $ 2,690 34 % $ 1,895 34 % $ 1,300 34 %
Increase (decrease) resulting from:
Tax-exempt interest (216) (3) (246) (4) (274) (7)
Amortization of excess
cost over assets acquired 32 1 37 1 49 1
Changes in valuation allowance
for deferred taxes (72) (1) (50) (1) - -
Benefit from utilization of net
operating loss carryforward - - (1) - (106) (2)
Other 26 - 68 1 10 -
-------- --------- -------- --------- -------- ---------
Provision for income taxes $ 2,460 31 % $ 1,703 31 % $ 979 26 %
======== ========= ======== ========= ======== =========
</TABLE>
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES (Continued)
Net deferred income tax assets of $454,000 and $584,000 at
December 31, 1995 and 1994, respectively, are included in
other assets. The components of deferred income taxes are as
follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1995 1994
-------------- -------------
(Dollars in Thousands)
---------------------------------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 929 $ 681
Deferred compensation 173 138
Other real estate 5 18
Other 34 78
Net operating loss tax carryforward 285 310
Less valuation allowance (228) (300)
Unrealized loss on securities available for sale - 232
-------------- -------------
1,198 1,157
-------------- -------------
Deferred tax liabilities:
Depreciation and amortization (353) (278)
Amortization of intangible assets (250) (283)
Other (30) (12)
Unrealized gain on securities available for sale (111)
-------------- -------------
(744) (573)
-------------- -------------
Net deferred tax assets $ 454 $ 584
============== =============
</TABLE>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into off-
balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments
to extend credit and standby letters of credit. Such financial
instruments are included in the financial statements when funds are
disbursed or the instruments become payable. These instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. The Company uses the same
credit and collateral policies for these off-balance-sheet financial
instruments as it does for on-balance-sheet financial instruments. A
summary of the Company's commitments is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
---------- ---------
(Dollars in Thousands)
-------------------------
<S> <C> <C>
Commitments to extend credit $ 42,666 $ 31,904
Credit card commitments 2,883 2,345
Standby letters of credit 1,433 989
---------- ------
$ 46,982 $ 35,238
========== =========
</TABLE>
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The credit risk involved in issuing these financial
instruments is essentially the same as that involved in extending
loans to customers. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit,
is based on management's credit evaluation of the customer. Collateral
held varies but may include real estate and improvements, marketable
securities, accounts receivable, crops, livestock, inventory,
equipment and personal property.
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Credit card commitments are unsecured.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above and
is required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management and counsel for the
Company, any liability resulting from such proceedings would not have
a material adverse effect on the Company's financial statements.
NOTE 10. CONCENTRATIONS OF CREDIT
The Banks make agricultural, agribusiness, commercial, residential and
consumer loans to customers primarily in the counties of southwest
Georgia and southeast Alabama.
A substantial portion of the Company's customers' abilities to honor
their contracts is dependent on the business economy in the
geographical area served by the Banks.
Although the Company's loan portfolio is diversified, there is a
relationship in this region between the agricultural economy and the
economic performance of loans made to nonagricultural customers. The
Company's lending policies for agricultural and nonagricultural
customers require loans to be well-collateralized and supported by
cash flows. Collateral for agricultural loans include equipment,
crops, livestock and land. Credit losses from loans related to the
agricultural economy is taken into consideration by management in
determining the allowance for loan losses.
A substantial portion of the Company's loans are secured by real
estate in the Company's primary market area. In addition, a
substantial portion of the real estate owned is located in those same
markets. Accordingly, the ultimate collectibility of a substantial
portion of the Company's loan portfolio and the recovery of a
substantial portion of the carrying amount of real estate owned are
susceptible to changes in market conditions in the Company's primary
market area.
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. CONCENTRATIONS OF CREDIT (Continued)
The Company has a concentration of funds on deposit at its primary
correspondent bank at December 31, 1995, as follows:
<TABLE>
<S> <C>
Noninterest-bearing accounts $ 16,852,293
Federal funds sold 31,480,000
------------
$ 48,332,293
============
</TABLE>
NOTE 11. 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 $2,630,000 are
available to be paid as dividends by the Bank subsidiaries at December
31, 1995.
Banking regulations also require the Company to maintain minimum
capital levels in relation to Company assets. At December 31, 1995,
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, 1995 are as follows:
<TABLE>
<CAPTION>
Regulatory
Actual Requirement
---------- -----------
<S> <C> <C>
Leverage capital ratio 9.93 % 4.00 %
Risk based capital ratios:
Core capital 14.52 4.00
Total capital 15.77 8.00
</TABLE>
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
1995 1994
--------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------------- -------------- --------------- -------------
(Dollars in Thousands)
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 75,836 $ 75,836 $ 46,740 $ 46,740
============== ============== =============== =============
Investments in securities $ 71,989 $ 72,167 $ 67,771 $ 65,912
============== ============== =============== =============
Loans $ 281,031 $ 271,784 $ 250,180 $ 242,602
Allowance for loan losses (5,184) - (4,525) -
-------------- -------------- --------------- -------------
Loans, net $ 275,847 $ 271,784 $ 245,655 $ 242,602
============== ============== =============== =============
Financial liabilities:
Noninterest-bearing demand $ 69,661 $ 69,661 $ 57,903 $ 57,903
Interest-bearing demand 90,495 90,495 81,325 81,325
Savings 27,468 27,468 29,743 29,743
Time deposits 206,333 208,175 168,245 168,327
-------------- -------------- --------------- -------------
Total deposits $ 393,957 $ 395,799 $ 337,216 $ 337,298
============== ============== =============== =============
Short-term borrowings $ 4,487 $ 4,487 $ 2,338 $ 2,338
============== ============== =============== =============
</TABLE>
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Assets
Cash $ 1,863 $ 2,055
Interest-bearing deposits in banks 2,060 1,500
Investment in subsidiaries 36,231 31,574
Other assets 4,097 4,094
----------- -----------
Total assets $ 44,251 $ 39,223
=========== ===========
Liabilities
Other liabilities $ 622 $ 662
----------- -----------
Total liabilities 622 662
----------- -----------
Stockholders' equity 43,629 38,561
----------- -----------
Total liabilities and stockholders' equity $ 44,251 $ 39,223
=========== ===========
</TABLE>
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Income
Dividends from subsidiaries $ 1,922 $ 1,269 $ 1,150
Interest 139 113 34
Fee and rental income 2,757 2,427 1,950
Other income 25 94 32
--------- --------- ---------
Total income 4,843 3,903 3,166
--------- --------- ---------
Expense
Interest - 111 193
Amortization and depreciation 440 453 434
Other expense 2,977 2,679 1,954
--------- --------- ---------
Total expense 3,417 3,243 2,581
--------- --------- ---------
Income before income taxes (benefits)
and equity in undistributed earnings
of subsidiaries 1,426 660 585
Income taxes (benefits) (63) (61) 145
--------- --------- ---------
Income before equity in undistributed
earnings of subsidiaries 1,489 721 440
Equity in undistributed earnings
of subsidiaries 3,963 3,152 2,757
--------- --------- ---------
Net income $ 5,452 $ 3,873 $ 3,197
========= ========= =========
</TABLE>
F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,452 $ 3,873 $ 3,197
---------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 172 185 155
Amortization of intangible assets 268 268 279
Undistributed earnings of subsidiaries (3,963) (3,152) (2,757)
Increase in interest receivable (9) (6)
Increase (decrease) in taxes payable (180) 30 19
Provision for deferred taxes 14 5 204
(Increase) decrease in due from
subsidiaries (56) 47 (51)
Other prepaids, deferrals and accruals, net (88) 58 (114)
---------- --------- ---------
Total adjustments (3,842) (2,565) (2,265)
---------- --------- ---------
Net cash provided by operating
activities 1,610 1,308 932
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in interest-bearing deposits in banks (560) (1,500) -
Purchases of premises and equipment (281) (243) (22)
Proceeds from sale of premises 17 - -
Contribution of capital to subsidiary bank - (1,500) -
---------- --------- ---------
Net cash used in investing activities (824) (3,243) (22)
---------- --------- ---------
</TABLE>
F-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term debt $ - $ - $ 1,474
Repayment of long-term debt - (4,739) (15)
Proceeds from sale of stock, net of
stock offering expense - 8,324 -
Proceeds from exercise of stock options 125 - -
Proceeds from exercise of stock options
of pooled subsidiary 86 - -
Purchase of treasury stock (29) (1,412)
Purchase of fractional shares (3) - -
Dividends paid (1,186) (645) (672)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (978) 2,911 (625)
----------- ----------- -----------
Net increase (decrease) in cash (192) 976 285
Cash at beginning of year 2,055 1,079 794
----------- ----------- -----------
Cash at end of year $ 1,863 $ 2,055 $ 1,079
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for interest $ - $ 111 $ 193
</TABLE>
F-39
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1996 1995
------------ ------------
<S> <C> <C>
Cash and due from banks $ 2,700,581 $ 1,490,491
Federal funds sold - 4,370,000
Securities available for sale, at fair value 5,041,732 6,595,924
Securities held to maturity, at cost (fair value
$6,232,415 and $5,958,969) 6,312,626 5,920,122
Loans 25,932,455 24,210,995
Less allowance for loan losses 322,123 300,000
------------ ------------
Loans, net 25,610,332 23,910,995
------------ ------------
Premises and equipment, net 1,013,206 995,131
Excess cost over assets acquired 320,710 351,952
Other assets 1,121,887 1,195,729
------------ ------------
$ 42,121,074 $ 44,830,344
============ ============
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand $ 4,455,147 $ 5,026,010
Interest-bearing demand 8,388,314 10,016,868
Savings 2,433,321 2,146,155
Time, $100,000 and over 5,468,749 8,197,430
Other time 12,878,061 12,837,555
------------ ------------
Total deposits 33,623,592 38,224,018
Notes payable 1,050,000 1,200,000
Short-term borrowings 3,650,000 2,000,000
Other liabilities 284,745 265,150
------------ ------------
Total liabilities 38,608,337 41,689,168
------------ ------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $1; 5,000,000 shares
authorized, 1,228,609 shares issued 1,228,609 1,228,609
Retained earnings 2,548,928 2,135,433
Unrealized gains (losses) on securities available
for sale, net of taxes (1,278) 50,811
------------ ------------
3,776,259 3,414,853
Less cost of shares acquired for the treasury 263,522 273,677
------------ ------------
3,512,737 3,141,176
------------ ------------
$ 42,121,074 $ 44,830,344
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-40
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Interest income
Interest and fees on loans $1,949,265 $1,853,420
Interest on taxable securities 408,262 466,941
Interest on nontaxable securities 172,247 128,393
Interest on deposits in other banks 5,481 12,630
Interest on Federal funds sold 49,612 30,049
---------- ----------
2,584,867 2,491,433
---------- ----------
Interest expense
Interest on deposits 1,112,218 1,062,202
Interest on other borrowings 201,833 195,059
---------- ----------
1,314,051 1,257,261
---------- ----------
Net interest income 1,270,816 1,234,172
Provision for loan losses 42,000 14,000
---------- ----------
Net interest income after provision for loan losses 1,228,816 1,220,172
---------- ----------
Other income
Service charges on deposit accounts 253,457 156,651
Other service charges, commissions and fees 23,764 22,003
Security transactions, net 8,695 21,899
Other 5,583 4,582
---------- ----------
291,499 205,135
---------- ----------
Other expenses
Salaries and employee benefits 498,378 481,370
Equipment expense 82,078 62,265
Occupancy expense 79,567 79,976
Other operating expenses 286,240 293,843
---------- ----------
946,263 917,454
---------- ----------
Income before income taxes 574,052 507,853
Applicable income taxes 162,673 131,584
---------- ----------
Net income $ 411,379 $ 376,269
========== ==========
Income per common share $ 0.38 $ 0.35
========== ==========
Average shares outstanding 1,091,358 1,086,069
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-41
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 411,379 $ 376,269
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 51,890 49,220
Amortization of intangible assets 31,242 31,242
Provision for loan losses 42,000 14,000
Security transactions, net (8,695) (21,899)
Other prepaids, deferrals and accruals, net 120,273 (85,238)
----------- -----------
Total adjustments 236,710 (12,675)
----------- -----------
Net cash provided by operating activities 648,089 363,594
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity 351,642 330,236
Proceeds from maturities of securities available for sale 1,392,674 1,350,502
Purchase of securities held to maturity (744,146) -
Purchase of securities available for sale (1,098,828) (2,000,030)
Proceeds from sales of securities available for sale 1,190,117 1,851,887
Decrease in Federal funds sold 4,370,000 3,710,000
Decrease in interest-bearing deposits in banks 198,272
Net increase in loans (1,741,337) (4,363,946)
Purchase of premises and equipment (69,965) (60,711)
----------- -----------
Net cash provided by investing activities 3,650,157 1,016,210
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (4,600,426) (3,857,144)
Principal payments on note payable (150,000) (150,000)
Increase in short-term borrowings 1,650,000 2,000,000
Proceeds from exercise of stock options 12,270 -
----------- -----------
Net cash used in financing activities (3,088,156) (2,007,144)
----------- -----------
Net increase (decrease) in cash and due from banks 1,210,090 (627,340)
Cash and due from banks at beginning of period 1,490,491 1,993,741
----------- -----------
Cash and due from banks at end of period $ 2,700,581 $ 1,366,401
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-42
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
(1) The accompanying unaudited consolidated financial statements, which are
for interim periods, do not include all disclosures provided in the
annual consolidated financial statements. These financial statements
and the notes thereto should be read in conjunction with the annual
financial statements and the notes thereto for the years ended December
31, 1995 and 1994 included elsewhere in this Proxy
Statement/Prospectus.
(2) All material intercompany balances and transactions have been
eliminated.
(3) In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
(4) Pending Merger
The directors of the Company have entered into a definitive merger
agreement with ABC Bancorp, a multi-bank holding company with
headquarters in Moultrie, Georgia, whereby ABC Bancorp would acquire
all of the outstanding common stock of the Company in exchange for
common stock of ABC Bancorp. The merger is subject to approval by the
Company's shareholders and certain regulatory authorities. Upon
completion of the merger, Merchants & Farmers Bank will become a
wholly-owned subsidiary of ABC Bancorp. The merger will be accounted
for as a pooling of interests.
F-43
<PAGE>
INDEPENDENT AUDITOR'S REPORT
================================================================================
To the Board of Directors
M & F Financial Corporation and Subsidiary
Donalsonville, Georgia
We have audited the accompanying consolidated balance sheets of the M
& F Financial Corporation and subsidiary as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 M & F
Financial Corporation and subsidiary as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Mauldin & Jenkins LLC
- -----------------------------------
Albany, Georgia
April 26, 1996
F-44
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
================================================================================
<TABLE>
<CAPTION>
Assets 1995 1994
- ------ ----------- -----------
<S> <C> <C>
Cash and due from banks $ 1,490,491 $ 1,993,741
Interest-bearing deposits in banks - 298,272
Federal funds sold 4,370,000 3,940,000
Securities available for sale, at fair value (Note 2) 6,595,924 7,159,754
Securities held to maturity, at cost (fair value
$5,958,969 and $5,183,022) (Note 2) 5,920,122 5,469,793
Loans (Note 3) 24,210,995 20,809,789
Less allowance for loan losses (Note 3) 300,000 250,000
----------- -----------
Loans, net 23,910,995 20,559,789
----------- -----------
Premises and equipment, net (Note 4) 995,131 999,098
Excess cost over assets acquired (Note 1) 351,952 393,608
Other assets 1,195,729 1,164,821
----------- -----------
$44,830,344 $41,978,876
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits
Noninterest-bearing demand $ 5,026,010 $ 5,140,760
Interest-bearing demand 10,016,868 8,310,579
Savings 2,146,155 2,344,125
Time, $100,000 and over 8,197,430 9,589,387
Other time 12,837,555 12,527,976
----------- -----------
Total deposits 38,224,018 37,912,827
Federal Home Loan Bank advances (Note 5) 2,000,000
Note payable (Note 6) 1,200,000 1,350,000
Other liabilities 265,150 195,281
----------- -----------
Total liabilities 41,689,168 39,458,108
----------- -----------
Commitments and contingent liabilities (Note 9)
Stockholders' equity (Note 11)
Common stock, par value $1; 5,000,000 shares authorized;
1,228,609 shares issued 1,228,609 1,228,609
Retained earnings 2,135,433 1,670,833
Unrealized gains (losses) on securities available
for sale, net of taxes 50,811 (104,997)
----------- -----------
3,414,853 2,794,445
Less cost of shares acquired for the treasury 273,677 273,677
----------- -----------
Total stockholders' equity 3,141,176 2,520,768
----------- -----------
$44,830,344 $41,978,876
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-45
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
================================================================================
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Interest income
Interest and fees on loans $ 2,490,018 $2,005,413
Interest on taxable securities 597,242 572,308
Interest on nontaxable securities 173,281 177,774
Interest on deposits in other banks 16,243 8,090
Interest on Federal funds sold 64,942 41,790
----------- ----------
3,341,726 2,805,375
----------- ----------
Interest expense
Interest on deposits 1,453,243 1,156,806
Interest on other borrowings (Notes 5 and 6) 246,569 111,018
----------- ----------
1,699,812 1,267,824
----------- ----------
Net interest income 1,641,914 1,537,551
Provision for loan losses (Note 3) 57,699 17,309
----------- ----------
Net interest income after provision for loan losses 1,584,215 1,520,242
----------- ----------
Other income
Service charges on deposit accounts 217,265 187,646
Other service charges, commissions and fees 19,816 19,662
Security transactions, net 17,215 5,453
Other 24,076 13,106
----------- ----------
278,372 225,867
----------- ----------
Other expense
Salaries and employee benefits (Note 7) 660,343 560,109
Equipment expense 87,639 121,879
Occupancy expense 106,941 85,726
Amortization of intangible assets 41,656 41,656
FDIC premiums 41,140 73,774
Directors' fees 41,400 36,900
Office supplies 28,704 31,110
Other operating expenses 239,115 217,094
----------- ----------
1,246,938 1,168,248
----------- ----------
Income before income taxes 615,649 577,861
Applicable income taxes (Note 8) 151,049 133,730
----------- ----------
Net income $ 464,600 $ 444,131
=========== ==========
Per share of common stock
Net income $ 0.43 $ 0.41
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-46
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
====================================================================================================================================
<CAPTION>
Unrealized
Gains (Losses)
on Securities
Common Stock Available
---------------------------- Capital Retained for Sale,
Shares Par Value Surplus Earnings Net of Taxes
--------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 1,228,609 $ 1,228,609 $ 34,291 $1,309,179 $ -
Net income - - - 444,131 -
Purchase of stock in subsidiary - - (34,291) (82,477) -
Net change in unrealized losses
on securities available for sale,
net of taxes - - - - (104,997)
------------ ----------- ---------- ----------- -----------
Balance, December 31, 1994 1,228,609 1,228,609 - 1,670,833 (104,997)
Net income - - - 464,600 -
Net change in unrealized
gains (losses) on securities
available for sale, net of taxes - - - - 155,808
----------- ------------ ----------- ----------- ----------
Balance, December 31, 1995 1,228,609 $ 1,228,609 $ - $ 2,135,433 $ 50,811
=========== ============ =========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-47
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Treasury Stock Total
------------------------------ Stockholders'
Shares Cost Equity
---------- ---------- -------------
<S> <C> <C> <C>
Balance, December 31, 1993 142,540 $ (273,677) $ 2,298,402
Net income - - 444,131
Purchase of stock in subsidiary - - (116,768)
Net change in unrealized losses
on securities available for sale,
net of taxes - - (104,997)
-------- ----------- -------------
Balance, December 31, 1994 142,540 (273,677) 2,520,768
Net income - - 464,600
Net change in unrealized
gains (losses) on securities
available for sale, net of taxes - - 155,808
---------- ----------- -------------
Balance, December 31, 1995 142,540 $ (273,677) $ 3,141,176
========== =========== =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-48
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
================================================================================
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 464,600 $ 444,131
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 69,187 80,864
Amortization of excess costs 41,656 41,656
Provision for loan losses 57,699 17,309
Provision for deferred income taxes (9,899) (3,236)
Securities transactions, net (17,215) (5,453)
Increase in interest receivable (96,015) (174,517)
Increase in interest payable 41,368 22,412
Increase (decrease) in taxes payable 24,131 (48,128)
Other prepaids, deferrals and accruals, net (889) (345,250)
----------- -----------
Total adjustments 110,023 (414,343)
----------- -----------
Net cash provided by operating activities 574,623 29,788
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (2,215,391) (1,374,631)
Proceeds from sales of securities available for sale 2,807,453 1,005,156
Proceeds from maturities of securities available for sale 225,056 -
Purchases of securities held to maturity (999,436) (1,125,844)
Proceeds from maturities of securities held to maturity 549,107 1,058,784
(Increase) decrease in Federal funds sold (430,000) 930,000
Decrease in interest-bearing deposits in banks 298,272 201,728
Increase in loans, net (3,408,905) (1,546,462)
Purchase of premises and equipment (65,220) (81,658)
Purchase of stock in subsidiary - (574,788)
------------ -----------
Net cash used in investing activities (3,239,064) (1,507,715)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits 311,191 2,556,787
Principal payments on note payable (150,000) (1,042,800)
Proceeds from long-term debt 2,000,000 1,500,000
Dividends paid to minority shareholders by subsidiary - (23,655)
------------ -----------
Net cash provided by financing activities 2,161,191 2,990,332
------------ -----------
</TABLE>
F-49
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
================================================================================
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net increase (decrease) in cash and due from banks $ (503,250) $ 1,512,405
Cash and due from banks at beginning of year 1,993,741 481,336
----------- -----------
Cash and due from banks at end of year $1,490,491 $ 1,993,741
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $1,658,444 $ 1,245,412
Income taxes $ 136,817 $ 185,094
NONCASH TRANSACTION
Unrealized (gains) losses on securities available for sale $ (236,073) $ 159,086
</TABLE>
See Notes to Consolidated Financial Statements.
F-50
<PAGE>
M & F FINANCIAL CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
M & F Financial Corporation (the Company) is a one-bank holding
company whose business is presently conducted by its wholly-owned
subsidiary, Merchants & Farmers Bank (the Bank) with operations in
Donalsonville, Georgia. The Bank provides a full range of banking
services to individual and corporate customers in its primary market
area of Seminole County and surrounding counties. The Company and
the Bank are subject to the regulations of certain Federal and state
agencies and are periodically examined by those regulatory agencies.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and general practices
within the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period.
Actual results could differ from those estimates.
The principles which significantly affect the determination of
financial position, results of operations and cash flows are
summarized below.
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 Bank maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Bank has not experienced any
losses in such accounts.
F-51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities Available for Sale
Securities classified as available for sale are those debt
securities that the Bank intends to hold for an indefinite period of
time, but not necessarily to maturity. Any decision to sell a
security classified as available for sale would be based on various
factors, including significant movements in interest rates, changes
in the maturity mix of the Bank's assets and liabilities, liquidity
needs, regulatory capital considerations and other similar factors.
Securities available for sale are carried at fair value. Unrealized
gains or losses are reported as increases or decreases in
stockholders' equity, net of the related deferred tax effect.
Realized gains or losses, determined on the basis of the cost of
specific securities sold, are included in earnings.
Securities Held to Maturity
Securities classified as held to maturity are those debt securities
the Bank has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or
changes in general economic conditions. These securities are carried
at cost adjusted for amortization of premium and accretion of
discount, computed by the interest method over their contractual
lives. The sale of a security within three months of its maturity
date or after collection of at least 85 percent of the principal
outstanding at the time the security was acquired is considered a
maturity for purposes of classification and disclosure.
A decline in the fair value below cost of any available for sale or
held to maturity security that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost
basis for the security.
Loans and Interest Income
Loans are stated at principal amounts outstanding less unearned
income and the allowance for loan losses. Interest income on loans
is credited to income based on the principal amount outstanding at
the respective rate of interest except for add on interest on
certain instalment loans for which interest is recognized on the
sum-of-the-months method.
F-52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans and Interest Income (Continued)
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.
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.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes that
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb estimated
losses on existing loans that may become uncollectible, based on
evaluation of the collectibility of loans and prior loss experience.
This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans and current
economic conditions that may affect the borrower's ability to pay.
Certain estimates are susceptible to change in the near term. Such
estimates include the creditworthiness of significant borrowers and
the collateral value of delinquent loans. While management uses the
best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are
significant changes in economic conditions. In addition, regulatory
agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses, and may
require the Bank to record additions to the allowance based on their
judgment about information available to them at the time of their
examinations.
F-53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans and Interest Income (Continued)
Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate
or, as a practical 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 the terms of the loan agreement. Accrual of
interest on an impaired loan is discontinued when management
believes, after considering collection efforts and other factors,
that the borrower's financial condition is such that collection of
interest is doubtful. Cash collections on impaired loans are
credited to the loans receivable balance, and no interest income is
recognized on those loans until the principal balance has been
collected.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally on the straight-
line method over the following estimated useful lives:
Years
---------
Buildings and improvements 15-40
Furniture and equipment 5-7
F-54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Real Estate Owned
Other real estate owned (OREO) represents properties acquired
through foreclosure or other proceedings. OREO is held for sale and
is recorded at the lower of the recorded amount of the loan or fair
value of the properties less estimated costs of disposal. Any write-
down to fair value at the time of transfer to OREO is charged to the
allowance for loan losses. Property is evaluated regularly to ensure
the recorded amount is supported by its current fair value and
valuation allowances to reduce the carrying amount to fair value
less estimated costs to dispose are recorded as necessary.
Subsequent decreases in fair value and increases in fair value, up
to the value established at foreclosure, are recognized as charges
or credits to noninterest expense. OREO is reported net of allowance
for losses in the Bank's financial statements.
Intangible Assets
Intangible assets, arising from excess of purchase price over net
assets acquired upon purchase of the subsidiary bank, are being
amortized on the straight-line method over various periods not
exceeding 17 years.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effect of changes in tax laws
on the date of enactment.
F-55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement No. 107 excludes certain
financial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The following methods and assumptions were used by the Bank in
estimating the fair value of its financial instruments:
Carrying amounts approximate fair values for the following
instruments:
Cash and due from banks
Federal funds sold
Securities available for sale
Variable rate loans that reprice frequently
Variable rate money market accounts
Variable rate certificates of deposit
Short-term borrowing
Accrued interest receivable
Accrued interest payable
Quoted market prices, where available, or if not available, based
on quoted market prices of comparable instruments for the following
instruments:
Securities held to maturity
Notes payable and other borrowing
F-56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments (Continued)
Discounted cash flows using interest rates currently being offered
on instruments with similar terms and with similar credit quality:
All loans except variable rate loans described above
Fixed rate certificates of deposit
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. The Bank has determined
that such instruments do not have a distinguishable fair value and
no fair value has been assigned to these instruments.
Earnings Per Share
Earnings per share are calculated on the basis of the weighted
average number of shares outstanding.
NOTE 2. INVESTMENTS IN SECURITIES
Effective January 1, 1994, the Bank adopted Financial Accounting
Standards Board Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." Upon adoption, the Bank transferred
$6,943,912 from securities being held to maturity to securities
available for sale. The securities available for sale were marked to
fair value resulting in a net unrealized gain of $221,662 which was
included in stockholders' equity at $146,297 net of related taxes of
$75,365.
F-57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 2. INVESTMENTS IN SECURITIES (Continued)
The amortized cost and approximate fair values of investments in
securities at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ --------- ----------- ----------
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1995:
U. S. Government and
agency securities $ 3,151,995 $ 49,091 $ (11,733) $3,189,353
Mortgage-backed securities 3,366,942 46,501 (6,872) 3,406,571
------------ --------- ----------- ----------
$ 6,518,937 $ 95,592 $ (18,605) $6,595,924
============ ========= =========== ==========
December 31, 1994:
U. S. Government and
agency securities $ 4,457,454 $ 24,508 $ (25,373) $4,456,589
Mortgage-backed securities 2,861,386 773 (158,994) 2,703,165
------------ --------- ------------ ----------
$ 7,318,840 $ 25,281 $ (184,367) $7,159,754
============ ========= ============ ==========
Securities Held to Maturity
December 31, 1995:
U. S. Government and
agency securities $ 58,534 $ 986 $ - $ 59,520
State and municipal securities 4,159,101 78,436 (40,757) 4,196,780
Mortgage-backed securities 1,702,487 10,243 (10,061) 1,702,669
------------ --------- ------------ ----------
$ 5,920,122 $ 89,665 $ (50,818) $5,958,969
============ ========= ============ ==========
December 31, 1994:
U. S. Government and
agency securities $ 61,610 $ - $ (416) $ 61,194
State and municipal securities 3,317,640 4,213 (189,117) 3,132,736
Mortgage-backed securities 2,090,543 - (101,451) 1,989,092
------------ --------- ------------ ----------
$ 5,469,793 $ 4,213 $ (290,984) $5,183,022
============ ========= ============ ==========
</TABLE>
F-58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 2. INVESTMENTS IN SECURITIES (Continued)
Proceeds from sales of securities available for sale during 1995 were
$2,807,453. Gross gains of $23,788 and gross losses of $6,573 were
realized on those sales.
Proceeds from sales of securities available for sale during 1994 were
$1,005,156. Gross gains of $5,453 were realized on those sales.
The amortized cost and fair value of securities as of December 31,
1995 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 prepaid without
penalty. Therefore, these securities are not included in the maturity
categories in the following maturity summary.
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
------------------------------- ------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,049,714 $ 1,061,891 $ 108,535 $ 109,520
Due from one year to five years 733,339 735,269 1,046,960 1,068,077
Due from five to ten years 888,135 907,180 2,497,140 2,524,726
Due after ten years 480,807 485,013 565,000 553,977
Mortgage-backed securities 3,366,942 3,406,571 1,702,487 1,702,669
------------- ------------- ------------- -------------
$ 6,518,937 $ 6,595,924 $ 5,920,122 $ 5,958,969
============= ============= ============= =============
</TABLE>
Securities with a par value of $9,244,000 and $5,515,000 at December
31, 1995 and 1994, respectively, were pledged to secure public
deposits and for other purposes.
F-59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Commercial and financial $ 560,977 $ 758,985
Agricultural 3,176,872 3,031,939
Real estate - mortgage, farmland 4,834,805 3,804,923
Real estate - mortgage, other 9,412,621 8,138,836
Consumer instalment, net of unearned interest 5,983,729 4,800,111
Other 241,991 274,995
------------ ------------
24,210,995 20,809,789
Allowance for loan losses (300,000) (250,000)
------------ ------------
Loans, net $23,910,995 $20,559,789
============ ============
</TABLE>
At December 31, 1995, the Bank had no loans which were considered to
be impaired.
Loans on which the accrual of interest had been discontinued or
reduced amounted to $7,563 at December 31, 1994. There were no
nonaccruing loans at December 31, 1995. There was no significant
reduction in interest income associated with nonaccrual loans.
F-60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
At December 31, 1995, 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 $1,711,776. 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,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Balance, beginning of year $ 1,001,189 $ 800,857
Advances 1,726,636 1,060,820
Repayments (1,016,049) (860,488)
------------- -------------
Balance, end of year $ 1,711,776 $ 1,001,189
============= =============
<CAPTION>
Changes in the allowance for loan losses are as follows:
December 31,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Balance, beginning of year $ 250,000 $ 240,744
Provision charged to operations 57,699 17,309
Loans charged off (12,856) (30,065)
Recoveries 5,157 22,012
------------- -------------
Balance, end of year $ 300,000 $ 250,000
============= =============
</TABLE>
F-61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 4. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Land $ 86,986 $ 86,986
Buildings 897,725 897,725
Equipment 839,586 774,366
Leasehold improvements 35,039 35,039
------------ ------------
1,859,336 1,794,116
Accumulated depreciation (864,205) (795,018)
------------ ------------
$ 995,131 $ 999,098
============ ============
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1994
was $69,187 and $80,864, respectively.
NOTE 5. FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank advances consisted of the following at December
31, 1995:
<TABLE>
<S> <C>
Federal Home Loan Bank, principal due July 12,1996, $ 500,000
interest due monthly at Federal Home Loan Bank daily
rate, collateralized by investment securities.
Federal Home Loan Bank, principal due March 21, 2002, 1,000,000
interest due monthly at LIBOR plus twenty-five basis
points, collateralized by investment securities.
Federal Home Loan Bank, principal due June 5, 2005, 500,000
interest due monthly at 6.48%, collateralized
by investment securities.
-----------
$ 2,000,000
===========
</TABLE>
At December 31, 1995, the Bank had pledged securities with a market
value of $2,336,414 to secure the advances.
F-62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 5. FEDERAL HOME LOAN BANK ADVANCES (Continued)
Aggregate maturities on Federal Home Loan Bank advances at
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 500,000
1997 -
1998 -
1999 -
2000 -
Later years 1,500,000
------------
$ 2,000,000
============
</TABLE>
NOTE 6. NOTE PAYABLE
Note payable consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1994
------------ ------------
<S> <C> <C>
The Bankers Bank - principal due in 10 annual $ 1,200,000 $ 1,350,000
instalments of $150,000 each beginning ============ ============
December 31, 1994, interest at prime minus
50 basis points due quarterly, collateralized
by stock in the subsidiary bank.
<CAPTION>
Aggregate maturities on note payable at December 31, 1995 are as follows:
<S> <C>
1996 $ 150,000
1997 150,000
1998 150,000
1999 150,000
2000 150,000
Later years 450,000
------------
$ 1,200,000
============
</TABLE>
F-63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 7. EMPLOYEE BENEFIT PLANS
The Bank has a 401K profit-sharing plan covering all employees,
subject to certain minimum age and service requirements. The amount of
the contribution is at the discretion of the Bank's Board of
Directors, and is based on a percentage of individual employee
salaries, not to excess the amount allowable under the Internal
Revenue Code. The contribution was $39,740 and $36,336 for the years
ended December 31, 1995 and 1994, respectively.
The Bank has a noncontributory pension plan covering substantially all
of its employees. No contributions were made during 1995 or 1994
because the plan was fully funded. The Bank has filed an application
with the Internal Revenue Service for a determination letter that the
plan is qualified and that the termination will be qualified under the
Internal Revenue Code. Based on calculations by actuaries, the
present value of all accrued benefits as of October 1, 1995 was
$165,334 on a plan termination basis. The market value of the plan
assets on October 1, 1995 was reported as $222,085, which amount was
more than sufficient to cover the termination liability. On December
11, 1995, the plan assets were transferred to a Merchants & Farmers
Bank certificate of deposit in the amount of $230,308, pending final
settlement of termination benefits to participants covered by the
plan.
NOTE 8. INCOME TAXES
The total income taxes in the consolidated statements of income are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Current $ 160,948 $ 136,966
Deferred (9,899) (3,236)
---------- ----------
$ 151,049 $ 133,730
========== ==========
</TABLE>
F-64
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 8. 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,
-----------------------------------------------------
1995 1994
------------------------ ------------------------
Amount Percent Amount Percent
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $ 209,321 34 % $ 196,473 34 %
Increase (decrease) resulting from:
Tax-exempt interest (56,674) (9) (60,608) (10)
Amortization (2,343) - (4,348) (1)
Other items, net 745 - 2,213 -
---------- ----------- ---------- -----------
Provision for income taxes $ 151,049 25 % $ 133,730 23 %
========== =========== ========== ===========
</TABLE>
Net deferred income tax assets of $35,057 and $105,423 at December 31,
1995 and 1994, respectively, are included in other assets. The
components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Loan loss reserve $ 73,602 $ 53,983
Unrealized loss on securities available for sale - 54,089
---------- ----------
73,602 108,072
---------- ----------
Deferred tax liabilities:
Depreciation 12,369 2,649
Unrealized gain on securities available for sale 26,176 -
---------- ---------
38,545 2,649
---------- ----------
Net deferred tax assets $ 35,057 $ 105,423
========== ==========
</TABLE>
F-65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank has entered into off-
balance-sheet financial instruments which are not reflected in the
financial statements. These financial instruments include commitments
to extend credit and standby letters of credit. Such financial
instruments are included in the financial statements when funds are
disbursed or the instruments become payable. These instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Bank uses the same credit and
collateral policies for these off-balance- sheet financial instruments
as it does for on-balance-sheet financial instruments. A summary of
the Bank's commitments is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Commitments to extend credit $2,703,977 $2,428,067
Standby letters of credit 11,400 40,000
---------- ----------
$2,715,377 $2,468,067
========== ==========
</TABLE>
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash requirements. The credit risk involved in issuing these
financial instruments is essentially the same as that involved in
extending loans to customers. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank 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, crops, livestock, inventory,
equipment and personal property.
F-66
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Credit card commitments are unsecured.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above
and is required in instances which the Bank deems necessary.
In the normal course of business, the Bank is involved in various
legal proceedings. In the opinion of management and counsel for the
Bank, any liability resulting from such proceedings would not have a
material adverse effect on the Bank's financial statements.
NOTE 10. CONCENTRATIONS OF CREDIT
The Bank makes agricultural, agribusiness, commercial, residential and
consumer loans to customers primarily in Seminole County.
A substantial portion of the Bank's customers' abilities to honor
their contracts is dependent on the business economy in Donalsonville,
Georgia and surrounding areas.
Although the Bank's loan portfolio is diversified, there is a
relationship in this region between the agricultural economy and the
economic performance of loans made to nonagricultural customers. The
Bank's lending policies for agricultural and nonagricultural customers
require loans to be well-collateralized and supported by cash flows.
Collateral for agricultural loans include equipment, crops, livestock
and land. Credit losses from loans related to the agricultural
economy is taken into consideration by management in determining the
allowance for loan losses.
A substantial portion of the Bank's loans are secured by real estate
in the Bank's primary market area. In addition, a substantial portion
of the real estate owned is located in those same markets.
Accordingly, the ultimate collectibility of a substantial portion of
the Bank's loan portfolio and the recovery of a substantial portion of
the carrying amount of real estate owned are susceptible to changes in
market conditions in the Bank's primary market area.
F-67
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 10. CONCENTRATIONS OF CREDIT (Continued)
The concentrations of credit by type of loan are set forth in Note 3.
Significant concentrations of credit risk that are not evident from
the summary in Note 3 include:
The Bank has a concentration of funds on deposit at its primary
Correspondent Bank at December 31, 1995, as follows:
<TABLE>
<CAPTION>
<S> <C>
Noninterest-bearing accounts $ 951,215
Federal funds sold 4,220,000
----------
$5,171,215
==========
</TABLE>
NOTE 11. STOCKHOLDERS' EQUITY
The primary source of funds available to the Parent Company is the
payment of dividends by the subsidiary. Banking regulations limit the
amount of dividends that may be paid without prior approval of the
Bank's regulatory agency. Approximately $283,000 are available to be
paid as dividends by the bank subsidiary at December 31, 1995.
Banking regulations also require the Bank to maintain minimum capital
levels in relation to Bank assets. At December 31, 1995, 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 Bank at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Regulatory
Actual Requirement
--------- ------------
<S> <C> <C>
Leverage capital ratio 9.01 % 4.00 %
Risk based capital ratios:
Core capital 14.07 % 4.00 %
Total capital 15.18 % 8.00 %
</TABLE>
F-68
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair values of the Company's
financial instruments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
------------ ------------
Financial assets:
<S> <C> <C>
Cash and short-term investments $ 5,860,491 $ 5,860,491
============ ============
Investment securities $ 12,516,046 $ 12,554,893
============ ============
Loans $ 24,210,995 $ 24,104,000
Less allowance for loan losses (300,000) -
------------ ------------
$ 23,910,995 $ 24,104,000
============ ============
Financial liabilities:
Noninterest-bearing demand $ 5,026,010 $ 5,026,010
Interest-bearing demand 10,016,868 10,016,868
Savings 2,146,155 2,146,155
Time deposits 21,034,985 21,886,000
------------ ------------
$ 38,224,018 $ 39,075,033
============ ============
Long-term debt $ 1,200,000 $ 1,200,000
============ ============
Federal Home Loan Bank advances $ 2,000,000 $ 2,000,000
============ ============
</TABLE>
F-69
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 13. CONDENSED FINANCIAL INFORMATION ON M & F FINANCIAL
CORPORATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Assets
Cash $ 115,459 $ 39,406
Due from subsidiary bank - 18,352
Other assets 1,175 2,375
Goodwill 351,952 393,608
Investment in subsidiary bank, at equity 3,851,696 3,379,398
Real estate owned 29,350 29,350
Improvements, net of depreciation of $30,174
and $26,760 4,775 8,279
---------- ----------
$4,354,407 $3,870,768
========== ==========
Liabilities and Stockholders' Equity
Liabilities
Note payable $1,200,000 $1,350,000
Accrued income taxes payable 13,231 -
---------- ----------
1,213,231 1,350,000
---------- ----------
Stockholders' equity
Common stock, $1 par value per share;
5,000,000 shares authorized; 1,228,609
shares issued 1,228,609 1,228,609
Retained earnings 2,135,433 1,670,833
Unrealized gains (losses) on securities
available for sale, net of taxes 50,811 (104,997)
---------- ----------
3,414,853 2,794,445
Less cost of treasury stock, 142,540 shares 273,677 273,677
---------- ----------
3,141,176 2,520,768
---------- ----------
$4,354,407 $3,870,768
========== ==========
</TABLE>
F-70
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 13. CONDENSED FINANCIAL INFORMATION ON M & F FINANCIAL
CORPORATION (PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Income
Dividends from subsidiary bank $ 250,000 $ 176,345
Interest 6,682 2,383
Rents 14,700 14,700
--------- ---------
Total income 271,382 193,428
--------- ---------
Expense
Amortization 41,656 41,656
Interest 114,007 80,038
Miscellaneous 21,830 29,382
--------- ---------
Total expenses 177,493 151,076
--------- ---------
Income before income tax benefits
and equity in undistributed net
income of subsidiary bank 93,889 42,352
Income tax benefits 54,221 48,117
--------- ---------
Income before equity in undistributed
net income of subsidiary bank 148,110 90,469
Equity in undistributed net income of
subsidiary bank 316,490 353,662
--------- ---------
Net income $ 464,600 $ 444,131
========= =========
</TABLE>
F-71
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 13. CONDENSED FINANCIAL INFORMATION ON M & F FINANCIAL
CORPORATION (PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 464,600 $ 444,131
---------- ----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 3,504 3,504
Amortization 41,656 41,656
Undistributed earnings of subsidiary (316,490) (353,662)
Increase (decrease) in income taxes
payable 31,583 (25,220)
Decrease in interest payable - (5,003)
Other prepaids, deferrals and
accruals, net 1,200 1,199
---------- ----------
Total adjustments (238,547) (337,526)
---------- ----------
Net cash provided by
operating activities 226,053 106,605
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of stock in subsidiary - (574,788)
---------- ----------
Net cash used in investing
activities - (574,788)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt - 1,500,000
Repayment of long-term debt (150,000) (1,042,800)
---------- ----------
Net cash provided by (used in)
financing activities (150,000) 457,200
---------- ----------
Net increase (decrease) in cash 76,053 (10,983)
Cash at beginning of year 39,406 50,389
---------- ----------
Cash at end of year $ 115,459 $ 39,406
========== ==========
</TABLE>
F-72
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ABC BANCORP
By: /s/ W. Edwin Lane, Jr.
------------------------------------
Name: W. Edwin Lane, Jr.
Title: Vice President and CFO
Dated: January 14, 1997
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
- ----------- -------------------
Exhibit 2.1 Merger Agreement (incorporated by reference to Exhibit 10.13 to
ABC's Registration on Form S-4 (Registration No. 333-14649), filed
with the Commission on October 23, 1996).
Exhibit 10.1 Noncompetition Agreement, John C. Mosely*
* Contained as an exhibit to the Merger Agreement
