<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-16181
ABC BANCORP (A GEORGIA CORPORATION)
I.R.S. EMPLOYER IDENTIFICATION NUMBER 58-1456434
310 FIRST STREET, S.E., MOULTRIE, GEORGIA 31768
TELEPHONE NUMBER: (912) 890-1111
Securities registered pursuant to Section 12(b) of the Act
None
Securities registered pursuant to Section 12(g) of the Act
Common Stock, Par Value $1 Per Share
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of March 1, 1997, registrant had outstanding 5,396,561 shares of common
stock, $1 par value per share, which is registrant's only class of common
stock. The aggregate market value of the voting stock held by nonaffiliates
of the registrant was approximately $82,402,000.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report is incorporated
by reference from the Registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A not later
than 120 days after the end of the fiscal year covered by this Annual Report.
<PAGE>
PART I
ITEM 1. BUSINESS OF THE COMPANY AND SUBSIDIARY BANKS
ABC Bancorp ("ABC" or the "Company") was organized as a bank holding
company under the Federal Bank Holding Company Act of 1956, as amended in 1981
(the"BHCA"), and the bank holding company laws of Georgia.
The Company provides, through its commercial bank subsidiaries described
below (hereinafter referred to as the ("Subsidiary Banks" or the "Banks"),
banking services to individuals and businesses in southwestern and southcentral
Georgia and southeastern Alabama. The Company's executive office is located at
310 First Street, S.E., Moultrie, Georgia 31768, and its telephone number is
(912) 890-1111. As a registered bank holding company, the Company is subject
to the applicable provisions of the BHCA and the Georgia Bank Holding Company
Act, as well as to supervision by the Board of Governors of the Federal Reserve
System and the State of Georgia Department of Banking and Finance.
The Company's primary business as a bank holding company is to manage
the business and affairs of the Banks. The Banks provide a broad range of retail
and commercial banking services to its customers, including checking, savings,
NOW and money market accounts and time deposits of various types; loans for
business, agriculture, real estate, personal uses, home improvement and
automobiles, credit cards; letters of credit; trust services; through a
correspondent bank, discount brokerage services; IRA's; safe deposit box
rentals; bank money orders; and electronic funds transfer services, including
wire transfers and automated teller machines. The Company maintains a
diversified loan portfolio and makes no foreign or energy-related loans.
While the Company has decentralized certain of its management
responsibilities, it maintains efficient centralized operating systems. As a
result, corporate policy, strategy and certain administrative policies are
established by the Board of Directors of the Company, while lending and
community-specific marketing decisions are made primarily by each Bank to allow
it to respond to differing needs and demands of its own market. Data
processing functions are centralized in the Company's data processing division
located in Moultrie, Georgia. Within this framework, the Banks focus on
providing personalized services and quality products to their customers to meet
the needs of the communities they serve. The Company's objective is to
establish itself as a major financial institution in southern Georgia.
Management has pursued this objective through an acquisition-oriented growth
strategy and a prudent operating strategy.
As a bank holding company, ABC performs central data processing
functions, purchasing functions and other common functions and provides certain
management services for its subsidiaries. Normal banking services are
conducted by its nine wholly-owned bank subsidiaries, which are sometimes
hereinafter collectively referred to as the "Banks."
1
<PAGE>
American Banking Company
American Banking Company ("American Bank") was incorporated on August 3,
1971 and operates a full- service banking business in Moultrie, Colquitt
County, Georgia, providing such banking services as checking and savings
accounts, various other types of time deposits and money transfers. As of
December 31, 1996, American Bank ranked, on the basis of total deposits, as the
second of three banks in Colquitt County.
American Bank finances various commercial, agricultural and consumer
transactions and makes and services both secured and unsecured loans to
individuals, firms and corporations. American Bank offers several credit card
products to its customers. American Bank makes a variety of residential,
industrial, commercial and agricultural loans secured by real estate,
including interim construction financing. American Bank also offers individual
trust services.
At December 31, 1996, American Bank had correspondent relationships with
twelve other commercial banks in Georgia. American Bank's principal
correspondent bank is SunTrust Bank, Atlanta, Georgia. These correspondent banks
provide certain services to American Bank such as processing checks and other
items, buying and selling Federal funds, handling money transfers and exchanges,
shipping coin and currency, providing security and safekeeping of funds or other
valuable items, and furnishing limited management information and advice. As
compensation for these services, American Bank maintains certain balances with
its correspondents in noninterest-bearing accounts.
The Bank of Quitman
The Bank of Quitman ("Quitman Bank") was founded on December 26, 1888,
and operates a full-service banking business in Quitman and Brooks County,
Georgia. On December 31, 1996, Quitman Bank ranked, on the basis of total
deposits, as the largest of four banks in Brooks County.
Among the services provided by Quitman Bank are checking accounts and
savings accounts, certificates of deposit and money transfers. Quitman Bank
finances a variety of agricultural, commercial and consumer transactions and
also makes secured and unsecured loans, including loans secured by real
estate, to individuals, firms and corporations and purchases installment
obligations from retailers without recourse. Quitman Bank also offers several
credit card products to its customers. Quitman Bank does not conduct trust
activities.
As of December 31, 1996, Quitman Bank had correspondent relationships
with seven other commercial banks. Quitman Bank's principal correspondent
bank is SunTrust Bank, Atlanta, Georgia. These correspondent banks provide
certain services to Quitman Bank such as processing checks and other items,
buying and selling Federal funds, handling money transfers and exchanges,
shipping coin and currency, providing security and safekeeping of funds or
other valuable items, and furnishing limited management information and advice.
As compensation for these services, Quitman Bank maintains certain balances
with its correspondents in noninterest-bearing accounts.
2
<PAGE>
Bank of Thomas County
The Bank of Thomas County ("Thomas Bank") was incorporated in 1911 and
operates a full service banking business in Coolidge, Thomasville and Thomas
County, Georgia, providing such banking services as checking and savings
accounts, other types of time deposits and money transfers. As of December
31, 1996, Thomas Bank ranked, on the basis of total deposits, as the sixth
largest of eight banks in Thomas County.
Thomas Bank finances commercial, agricultural and consumer transactions
and makes and services both secured and unsecured loans to individuals, firms
and corporations. Thomas Bank also offers several credit card products to its
customers. Thomas Bank makes a variety of residential, industrial, commercial
and agricultural loans secured by real estate, including interim construction
financing. Thomas Bank does not conduct trust activities.
At December 31, 1996, Thomas Bank had a correspondent relationship with
three other commercial banks. Thomas Bank's principal correspondent bank is
SunTrust Bank, Atlanta, Georgia. These correspondent banks provide certain
services to Thomas Bank, such as processing checks and other items, buying and
selling Federal funds, handling money transfers and exchanges, shipping coin
and currency, providing security and safekeeping of funds or other valuable
items and furnishing limited management information and advice. As
compensation for these services, Thomas Bank maintains certain balances with
its correspondents in noninterest-bearing accounts.
The Citizens Bank of Tifton
The Citizens Bank of Tifton ("Tifton Bank") was incorporated in 1945 and
operates a full service banking business in Tifton and Tift County, Georgia,
providing such banking services as checking and savings accounts, other types
of time deposits and money transfers. As of December 31, 1996, Tifton Bank
ranked, on the basis of total deposits, as the third largest of six banks in
Tift County.
Tifton Bank finances commercial, agricultural and consumer transactions
and makes and services both secured and unsecured loans to individuals, firms
and corporations. Tifton Bank also offers several credit card products to its
customers. Tifton Bank makes a variety of residential, industrial, commercial
and agricultural loans secured by real estate, including interim construction
financing. Tifton Bank does not conduct trust activities.
At December 31, 1996, Tifton Bank had correspondent relationships with
seven other commercial banks. Tifton Bank's principal correspondent bank is
SunTrust Bank, Atlanta, Georgia. These correspondent banks provide certain
services to Tifton Bank, such as processing checks and other items, buying and
selling Federal funds, handling money transfers and exchanges, shipping coin
and currency, providing security and safekeeping of funds or other valuable
items and furnishing limited management information and advice. As
compensation for these services, Tifton Bank maintains certain balances with
its correspondents in noninterest-bearing accounts.
3
<PAGE>
Cairo Banking Company
Cairo Banking Company ("Cairo Bank") was incorporated in 1900 and
operates a full-service banking business in Cairo and Grady County and Thomas
County, Georgia, providing such banking services as checking and savings
accounts, other types of time deposits and money transfers. As of December 31,
1996, Cairo Bank ranked as the second largest of five banks in Grady County.
Cairo Bank also finances commercial, agricultural and consumer
transactions and makes and services both secured and unsecured loans to
individuals, firms and corporations. Cairo Bank offers several credit card
products to its customers. Cairo Bank makes a variety of residential,
industrial, commercial and agricultural loans secured by real estate,
including interim construction financing. Cairo Bank does not conduct trust
activities.
At December 31, 1996, Cairo Bank had correspondent relationships with
five other commercial banks. Cairo Bank's principal correspondent is The
Bankers Bank, Atlanta, Georgia. These correspondent banks provide certain
services to Cairo Bank, such as processing checks and other items, buying and
selling Federal funds, providing security and safekeeping of funds or other
valuable items and furnishing limited management information and advice. As
compensation for these services, Cairo Bank maintains certain balances with
its correspondents in noninterest-bearing accounts.
Southland Bank
Southland Bank opened in 1887 through its predecessor. The Abbeville
location was opened in 1983, followed by the Headland branch in 1984. The main
office is located in Dothan, Alabama. Southland Bank's branches are located in
the Alabama cities of Abbeville, Clayton, Eufaula and Headland.
All Southland Bank locations offer full service banking to include
checking and savings accounts, various types of time deposits and money
transfers. Southland Bank offers agricultural, commercial, consumer and real
estate lending on both secured and unsecured basis to individuals, businesses
and corporations. Southland Bank also provides mortgage loan production, full
brokerage capabilities through PFIC Securities, and is a Certified SBA Lender.
As of December 31, 1996, Southland Bank had correspondent relationships
with Federal Home Loan Bank of Atlanta (FHLB), SunTrust Bank of Atlanta, and
Compass Bank, with the principal correspondent being the FHLB. These
corespondent banks provide certain services to Southland Bank such as
processing checks and other items, buying and selling Federal funds, handling
money transfers and exchanges, shipping coin and currency, providing security
and safekeeping of funds or other valuable items, and furnishing limited
management information and advice. As compensation for these services,
Southland Bank maintains certain balances with its correspondents in
noninterest-bearing accounts.
4
<PAGE>
Central Bank & Trust
Central Bank & Trust ("Central Bank") was incorporated in 1986 and
operates a full-service banking business in Cordele and Crisp County, Georgia,
providing such banking services as checking and savings accounts, other types
of time deposit and money transfers. As of December 31, 1996, Central Bank was
ranked, on the basis of total deposits, as the smallest of the three banks in
Crisp County.
Central Bank also finances commercial, agricultural, consumer and
mortgage transactions and makes and services both secured and unsecured loans to
individuals, firms and corporations. Central Bank makes a variety of
residential, industrial, commercial and agricultural loans secured by real
estate, including interim construction financing. Central Bank does not conduct
trust activities.
At December 31, 1996, Central Bank had correspondent relationships with
four other commercial banks. Central Bank's principal correspondent is The
Bankers Bank, Atlanta, Georgia. These correspondent banks provide certain
services to Central Bank, such as processing checks and other items, buying and
selling Federal funds, providing security and safekeeping of funds or other
valuable items and furnishing limited management information and advice. As
compensation for these services, Central Bank maintains certain balances with
its correspondents in noninterest-bearing accounts.
First National Bank of South Georgia
First National Bank of South Georgia ("First National Bank") commenced
operations on May 29, 1991 in an 8,750 square foot facility located on a 1.73
acre tract of land located at the corner of Dawson Road and Westover Boulevard
in Albany, Georgia.
First National Bank is a full service commercial bank without trust
powers. First National Bank offers a full range of deposit accounts including
interest-bearing and noninterest-bearing checking for commercial and retail
customers, regular savings accounts, money market accounts, certificates of
deposit and individual retirement accounts. First National Bank originates a
variety of loans such as commercial, real estate, home equity and
consumer/instalment loans. In addition, First National Bank provides such
consumer services as travelers checks, official checks, U.S. Savings bonds,
safe deposit boxes, direct deposit services and automated teller services.
At December 31,1996, First National Bank maintained correspondent
relationships with six commercial banks. First National Bank's principal
correspondent bank is The Bankers Bank, Atlanta, Georgia. These correspondent
banks provide certain services to First National Bank such as clearing checks
and other items, buying and selling Federal funds, handling money transfers and
exchanges, shipping coin and currency, providing security and safekeeping of
funds or other valuable items. As compensation for these services, First
National Bank maintains certain balances with its correspondents in
noninterest-bearing accounts.
5
<PAGE>
Merchants & Farmers Bank
Merchants & Farmers Bank ("M & F Bank") was incorporated on September
24, 1925, and operates a full service banking business in Donalsonville and
Seminole County, Georgia, providing such banking services as checking and
savings accounts, other types of time deposits and money transfers. As of
December 31, 1996, M & F Bank was the larger of the two commercial banks in
Seminole County.
M & F Bank finances commercial, agricultural and consumer transactions
and makes and services both secured and unsecured loans to individuals, firms
and corporations. M & F Bank also offers several credit card products to its
customers. M & F Bank makes a variety of residential, industrial, commercial and
agricultural loans secured by real estate, including interim construction
financing. M & F Bank does not conduct trust activities.
At December 31, 1996, M & F Bank had corresponding relationships with
five other banks. M & F Bank's primary correspondent bank is The Bankers Bank,
Atlanta, Georgia. These correspondent banks provide certain services to M & F
Bank, such as processing checks and other items, buying and selling Federal
funds, handling money transfers and exchanges, shipping coins and currency,
providing security and safekeeping of funds or other valuable items and
furnishing limited management information and advice. As compensation for these
services, M & F Bank pays analysis charges based on services rendered.
Market Area and Competition
The Company' s market area is the Southwestern quadrant of Georgia and
the Southeastern quadrant of Alabama. The Banks' main offices are located in the
southern Georgia cities of Moultrie, Quitman, Thomasville, Tifton, Cairo,
Cordele, Albany and Donalsonville, and the southern Alabama city of Dothan. The
Banks have a total of 24 offices located in either the cities or counties in
which the main offices are located, or in smaller cities nearby.
ABC's banking facilities are located in communities whose economies are
based primarily on agriculture, manufacturing and light industry. Textiles,
meat processing and aluminum processing are among the leading manufacturing
industries in the Company's market area.
The banking industry in Georgia and Alabama is highly competitive. In
recent years, intense market demands, economic pressures, fluctuating interest
rates and increased customer awareness of product and service differences
among financial institutions have forced banks to diversify their services and
become more cost effective. Each of the Banks faces strong competition in
attracting deposits and making loans. Their most direct competition for
deposits comes from other commercial banks, thrift institutions, credit unions
and issuers of securities such as shares in money market funds. Interest
rates, convenience of office locations and marketing are all significant
factors in the Banks' competition for deposits.
Competition for loans comes from other commercial banks, thrift
institutions, savings banks, insurance companies, consumer finance companies,
credit unions and other institutional lenders. The Banks compete for loan
originations through the interest rates and loan fees they charge and the
efficiency and quality of services they provide. Competition is affected by
the general availability of lendable funds, general and local economic
conditions, current interest rate levels and other factors that are not
readily predictable.
Management expects that competition will become more intense in the
future due to changes in state and Federal laws and regulations and the entry
of additional bank and nonbank competitors.
6
<PAGE>
Lending Policy
The Company has sought to maintain a comprehensive lending policy that
meets the credit needs of each of the communities served by the Banks,
including low- and moderate-income customers, and to employ lending procedures
and policies consistent with this approach. All loans are subject to the
Company's written loan policy, which is updated annually and which provides
that lending officers have sole authority to approve loans of various maximum
amounts depending upon their seniority and experience. Each Bank's president
has sole discretion to approve loans in varying principal amounts up to
specified limits for each president. Each Bank's Board of Directors reviews
and approves loans that exceed management's lending authority and, in certain
instances, other types of loans. New credit extensions are reviewed daily by
each Bank's senior management and at least monthly by its Board of Directors.
The lending officers at each Bank have authority to make loans only in
the county in which the Bank is located and its contiguous counties. The
Company's lending policy requires analysis of the borrower's projected cash flow
and ability to service the debt. For agricultural loans, which constitute a
significant portion of the Company's loan portfolio, the lending officer visits
the borrower regularly during the growing season and re-evaluates the loan in
light of the borrower's updated cash flow projections. Under the Company's
ongoing loan review program, each loan is assigned to a lending officer other
than the originating lending officer for review and analysis.
The Company actively markets it services to qualified lending customers
in both the commercial and consumer sectors. The Company's commercial lending
officers actively solicit the business of new companies entering the market as
well as longstanding members of that market's business community. Through
personalized professional service and competitive pricing, the Company has been
successful in attracting new commercial lending customers. At the same time, the
Company actively advertising its consumer loan products and continually seeks to
make its lending officers more accessible.
Each Bank continually monitors its loan portfolio to identify areas of
concern and to enable management to take corrective action when necessary.
Each Bank's lending officers and Board of Directors meet periodically to review
all past due loans, the status of large loans and certain other matters.
Individual lending officers are responsible for reviewing collection of past
due amounts and monitoring any changes in the financial status of the borrowers.
Lending Activities
General. The Company provides a broad range of commercial and retail
lending services to corporations, partnerships and individuals, including
agricultural, commercial business loans, commercial and residential real estate
construction and mortgage loans, loan participations, consumer loans, revolving
lines of credit and letters of credit. The loan department of each Bank makes
direct and indirect loans to consumers and originates and services residential
mortgages. In addition, each of the Banks has loan officers who specialize in
originating and servicing agricultrual-related loans.
Agricultural-Related Loans. A significant portion of the Company's
consolidated loan portfolio is comprised of agricultural loans, described
below, and real estate mortgage loans secured by farmland. In addition, due to
the predominance of the agricultural industry in the Company's market area,
management believes that a significant portion of the Company's commercial and
industrial loans are agricultural-related. The Company has not attempted to
quantify the amount of its commercial and industrial loans which should be
considered agricultural-related loans because virtually all such loans are
agricultrual-related to some extent.
7
<PAGE>
Lending Activities (Continued)
Agricultural Loans. The Company classified loans as agricultural loans
if such loans are made for crop production expenses or to finance the purchase
of farm-related equipment. Agricultural loans typically involve significant
seasonal fluctuations in principal amounts. Although the Company typically looks
to an agricultural borrower's cash flow as the principal source of repayment,
agricultural loans are also generally secured by a security interest in the
crops or the farm-related equipment and, in some cases, an assignment of crop
insurance or a mortgage on real estate. In addition, a portion of the Company's
agricultural loans are guaranteed by the FmHA Guaranteed Loan Program, described
below. Agricultural loans are made with the Company's loan documentation in
accordance with the Company's lending policies and are serviced by the Company's
loan officers who visit the borrowers at least three times during the growing
season to re-evaluate the loan in light of the borrowers' updated cash flows
projections. See "Lending Policy." The Company maintains average crop production
yield statistics on its agricultural borrowers which allows the Company to more
accurately evaluate the borrowers' cash flow projections. In order to minimize
the risk of fluctuating commodity prices, the Company encourages its
agricultural borrowers to forward contract for the sale of their crops.
All of the Banks participate in the FmHA Guaranteed Loan Program. The
FmHA guarantees 90% of the principal of and interest on loans made for the
purpose of buying or improving farms; purchasing items necessary for farm
operations; and developing or conserving land and water resources. The Company
has generally been able to obtain FmHA approval of loans within 10 days after
submitting an application.
Commercial and Industrial Loans. General commercial and industrial loans
consist of loans made primarily to manufacturers, wholesalers and retailers of
goods, service companies and other industries. Management believes that a
significant portion of these loans are, to varying degrees, agricultural-
related. See "--Agricultural-Related Loans." The Banks have also generated loans
which are guaranteed by the U. S. Small Business Administration. Management
believes that making such loans helps the local community and also provides the
Company with a source of income and solid future lending relationships as such
businesses grow and prosper. The primary repayment risk for commercial loans is
the failure of the business due to economic or financial factors. Although the
Company typically looks to a commercial borrower's cash flow as the principal
source of repayment for such loans, many commercial loans are secured by
inventory, equipment, accounts receivable and other assets.
Real Estate Loans. The Company's real estate loans are for a term of
years, although rarely more than ten, over which period the principal thereof
is amortized, and are generally secured by residential real estate, farmland or
commercial real estate.
Consumer Lending. The Company's consumer loans include motor vehicle,
home improvement, home equity, student and signature loans and small personal
credit lines. Many of the Banks also offer credit cards to their customers.
Trust Services. The Company provides personal trust services to its
customers through American Bank.
8
<PAGE>
Lending Activities (Continued)
Compliance with Community Reinvestment Act. Each of the Banks has a
Community Reinvestment Act Officer who develops and oversees that Bank's
Community Reinvestment Act program and makes monthly reports to that Bank's
Board of Directors. The Banks regularly sponsor or participate in community
programs designed to ascertain and meet the credit needs of each of the
communities they serve, including low and moderate income neighborhoods. Some
of these activities include sponsoring minority festivals during Black History
Month, participating in community meetings to explain the availability of Small
Business Administration, Farmers' Home Loan Administration and Regional
Development Center loans, and sponsoring educational seminars for area farmers.
In addition, each of the Banks participate in the Georgia Residential Finance
Authority program which makes low interest rate loans to rehabilitate low
income rental housing.
Deposits
Checking, savings and money market accounts and other time accounts are
the primary sources of the Banks' funds for loans and investments. The Banks
obtain most of their deposits from individuals and from businesses in their
respective market areas.
The Banks have not had to attract new or retain old deposits by paying
depositors rates of interest on certificates of deposit, money market and other
interest-bearing accounts significantly above rates paid by other banks in the
Banks' respective market areas. In the future, increasing competition among
banks in the Banks' market areas may cause the Banks' interest margins to
shrink. The Banks have never accepted deposits for which a broker's commission
was paid.
Investment Activities
The Company's investment policy is designed to maximize income from
funds not needed to meet loan demand in a manner consistent with appropriate
liquidity and risk objectives. Under this policy, the Banks may invest in
Federal, state and municipal obligations, public housing authority bonds.
industrial development revenue bonds and Government National Mortgage
Association ("GNMA") securities. The Banks' investments must satisfy certain
investment quality criteria. The Bank's investments must be rated at least Baa
by Moody's or BAA by Standard and Poor's. Securities rated below A are
periodically reviewed for creditworthiness. The Banks may purchase non-rated
municipal bonds only if the issuer of such bonds is located in a Bank's general
market area and such bonds are determined by the purchasing Bank to have a
credit risk no greater than the minimum ratings referred to above. Industrial
development authority bonds, which normally are not rated, are purchased only if
the issuer is located in the Company's market area and if the bonds are
considered to possess a high degree of credit soundness. The Banks typically
have not purchased a significant amount of GNMA securities, which normally have
higher yields than the Banks' other investments.
While the Company's investment policy permits the Banks to trade
securities to improve the quality of yields or marketability or to realign the
composition of the portfolio, the Banks historically have not done so to any
significant extent.
The Company's investment officers implement the investment policy,
monitor the portfolio and, reporting to each Bank's investment committee,
recommend portfolio strategies. Reports on all purchases, sales, net profits or
losses and market appreciation or depreciation of the bond portfolio are
reviewed by the Company's Board of Directors each month. Once a year, the
written investment policy is reviewed by the Company's Board of Directors.
Each Bank's securities are kept in safekeeping accounts at correspondent
banks.
9
<PAGE>
Asset/Liability Management
It is the objective of the Company to manage its assets and liabilities
to provide a satisfactory, consistent level of profitability within the
framework of established cash, loan, investment, borrowing and capital policies.
It is the overall philosophy of the Company's management to support asset growth
primarily through growth of core deposits, which include deposits of all
categories made by individuals, partnerships, corporations and other entities.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Properties
The table below sets forth the location, size and other information with
respect to the Company's real properties. All properties are owned by the
Company or its subsidiaries and are unencumbered.
Approximate
Square
Offices Used By Footage
- -------------------------------------- ---------------- --------
310 First Street, S.E., Moultrie, GA ABC Bancorp 7,000
225 South Main Street, Moultrie, GA American Bank 9,000
1707 First Avenue, S.E., Moultrie, GA American Bank 5,500
137 Broad Street, Doerun, GA American Bank 3,860
1000 West Screven Street, Quitman, GA Quitman Bank 11,530
Eastern Brooks County, GA Quitman Bank 1,100
529 Pine Avenue, Coolidge, GA Thomas Bank 4,000
111 E. Eighth Street, Tifton, GA Tifton Bank 11,700
804 W. Second Street, Tifton, GA Tifton Bank 2,000
201 South Broad Street, Cairo, GA Cairo Bank 10,000
Hwy. 84 Drive-in, Cairo, GA Cairo Bank 1,000
12 East Depot Street, Meigs, GA Cairo Bank 2,700
2484 East Pinetree Boulevard, Thomasville, GA Thomas Bank 4,800
3299 Ross Clark Circle, Dothan, AL Southland Bank 21,918
3090 Ross Clark Circle, Dothan, AL Southland Bank 419
1817 S. Oates St., Dothan, AL Southland Bank 2,500
204 Kirkland St., Abbeville, AL Southland Bank 5,300
33 Eufaula St., Clayton, AL Southland Bank 4,500
1094 S. Eufaula Ave., Eufaula, AL Southland Bank 2,240
208 Main St., Headland, AL Southland Bank 2,037
502 Second Street South, Cordele, GA Central Bank 5,800
1302 Sixteenth Avenue East, Cordele, GA Central Bank 300
2627 Dawson Road, Albany, GA First National Bank 8,750
109 W. Third St., Donalsonville, GA M & F Bank 8,800
Hwy 374 and 253, Donalsonville, GA M & F Bank 840
10
<PAGE>
Employees
At December 31, 1996, ABC and its subsidiaries employed 310 full-time
employees and 19 part-time employees. ABC considers its relationship with its
employees to be excellent.
ABC has adopted a simplified employee pension plan covering
substantially all employees. The Company and the Banks made contributions for
all eligible employees in 1996. ABC also maintains a comprehensive employee
benefits program providing, among other benefits, hospitalization and major
medical insurance and life insurance. Management considers these benefits to be
competitive with those offered by other financial institutions in south Georgia
and south Alabama. The Company's employees are not represented by any collective
bargaining group.
SUPERVISION AND REGULATION
General
As a bank holding company, ABC is subject to the regulation and
supervision of the Federal Reserve Board (the "FRB") and the Georgia Department
of Banking and Finance (the "DBF"). The Subsidiary Banks are subject to
supervision and examination by applicable state and Federal banking agencies,
including the FRB, the DBF, the Federal Deposit Insurance Corporation (the
"FDIC"), the Comptroller of the Currency (the "CC") and the State of Alabama
Department of Banking. The Subsidiary Banks are also subject to various
requirements and restrictions under Federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Subsidiary Banks. In addition to the impact
of regulation, commercial banks are affected significantly by the actions of
the FRB as it attempts to control the money supply and credit availability in
order to influence the economy.
The Bank Holding Company Act requires every bank holding company to
obtain the prior approval of the FRB before (i) it may acquire direct or
indirect ownership or control of more than 5% of the voting shares of any bank
that it does not already control; (ii) it or any of its subsidiaries, other than
a bank, may acquire all or substantially all of the assets of a bank; and (iii)
it may merge or consolidate with any other bank holding company. In addition, a
bank holding company is generally prohibited from engaging in, or acquiring,
direct or indirect control of the voting shares of any company engaged in non-
banking activities. This prohibition does not apply to activities found by the
FRB, by order or regulation, to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the activities
that the FRB has determined by regulation or order to be closely related to
banking are: (i) making or servicing loans and certain types of leases; (ii)
performing certain data processing services; (iii) acting as fiduciary or
investment or financial advisor; (iv) providing discount brokerage services; (v)
underwriting bank eligible securities; (vi) underwriting debt and equity
securities on a limited basis through separately capitalized subsidiaries; and
making investments in corporations or projects designed primarily to promote
community welfare.
11
<PAGE>
In addition, the DBF requires information with respect to the financial
condition, operations, management and intercompany relationships of ABC and the
Subsidiary Banks and related matters. The DBF may also require such other
information as is necessary to keep itself informed as to whether the
provisions of Georgia law and the regulations and orders issued thereunder by
the DBF have been complied with, and the DBF may examine ABC. ABC is an
"affiliate" of the Subsidiary Banks under the Federal Reserve Act, which
imposes certain restrictions on (i) loans by the Subsidiary Banks to ABC; (ii)
investments in the stock or securities of ABC by the Subsidiary Banks; (iii)
the Subsidiary Bank's taking the stock or securities of an "affiliate" as
collateral for loans by the Subsidiary Banks to a borrower; and (iv) the
purchase of assets from ABC by the Subsidiary Banks. Further, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
Payment of Dividends and Other Restrictions
ABC is a legal entity separate and distinct from its subsidiaries. There
are various legal and regulatory limitations under Federal and state law on the
extent to which ABC's subsidiaries can pay dividends or otherwise supply funds
to ABC.
The principal source of ABC's cash revenues is dividends from its
subsidiaries and there are certain limitations under Federal and state laws on
the payment of dividends by such subsidiaries. The prior approval of the FRB
or the applicable state commissioner, as the case may be, is required if the
total of all dividends declared by any state member bank of the Federal Reserve
System in any calendar year exceeds the Bank's net profits (as defined) for
that year combined with its retained net profits for the preceding two calendar
years, less any required transfers to surplus or a fund for the retirement of
any preferred stock. The relevant Federal and state regulatory agencies also
have authority to prohibit a state member bank or bank holding company, which
would include ABC and the Subsidiary Banks from engaging in what, in the
opinion of such regulatory body, constitutes an unsafe or unsound practice in
conducting its business. The payment of dividends could, depending upon the
financial condition of the subsidiary, be deemed to constitute such an unsafe
or unsound practice.
Under Georgia law (which would apply to any payment of dividends by the
Georgia Subsidiary Banks to ABC), the prior approval of the DBF is required
before any cash dividends may be paid by a state bank if: (i) total classified
assets at the most recent examination of such bank exceed 80% of the equity
capital (as defined, which includes the reserve for loan losses) of such bank;
(ii) the aggregate amount of dividends declared or anticipated to be declared
in the calendar year exceeds 50% of the net profits (as defined) for the
previous calendar year; or (iii) the ratio of equity capital to adjusted total
assets is less than 6%. Under Alabama law, a state bank may not declare or pay
a dividend in excess of 90% of the net earnings of such bank until the surplus
of the bank is equal to at least 20% of its capital, and thereafter the prior
written approval of the Superintendent of Banks is required if the total of all
dividends declared by the bank in any calendar year exceeds the total of its
net earnings for that year combined with its retained net earnings for the
preceding two years. No dividends, withdrawals or transfers may be made from
the bank's surplus without prior written approval of the Superintendent of
Banks. First National Bank is subject to rules and regulations of the CC which
also restricts the amounts of dividends that can be paid by a national bank.
Retained earnings under all applicable regulations without obtaining
governmental approval were approximately $5.59 million as of December 31, 1996.
12
<PAGE>
In addition, the Banks are subject to limitations under Section 23A of
the Federal Reserve Act with respect to extensions of credit to, investments in,
and certain other transactions with, ABC. Furthermore, loans and extensions of
credit are also subject to various collateral requirements.
Capital Adequacy
The FRB has adopted risk-based capital guidelines for bank holding
companies. The minimum ratio of total capital ("Total Capital") to
risk-weighted assets (including certain off-balance sheet items, such as
standby letters of credit) is 8%. At least half of the Total Capital is to be
composed of common stock, minority interests in the equity accounts of
consolidated subsidiaries, noncumulative perpetual preferred stock and a
limited amount of perpetual preferred stock, less goodwill ("Tier I Capital").
The remainder may consist of subordinated debt, other preferred stock and a
limited amount of loan loss reserves.
In addition, the FRB has established minimum leverage ratio guidelines
for bank holding companies. These guidelines for a minimum ratio of Tier I
Capital to total assets, less goodwill (the "Leverage Ratio") of 3% for bank
holding companies that meet certain specified criteria, including those having
the highest regulatory rating. All other bank holding companies generally are
required to maintain a Leverage Ratio of at least 3% plus an additional cushion
of 100 to 200 basis points. The guidelines also provide that bank holding
companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the FRB
has indicated that it will consider a "tangible Tier I capital leverage ratio"
(deducting all intangibles) and other indications of capital strength in
evaluating proposals for expansion or new activities.
Effective December 19, 1992, a new Section 38 to the Federal Deposit
Insurance Act implemented the prompt corrective action provisions that Congress
enacted as a part of the Federal Deposit Insurance Corporation Improvement Act
of 1991 (the "1991 Act"). The "prompt corrective action" provisions set forth
five regulatory zones in which all banks are placed largely based on their
capital positions. Regulators are permitted to take increasingly harsh action
as a Bank's financial condition declines. Regulators are also empowered to
place in receivership or require the sale of a bank to another depository
institution when a bank's capital leverage ratio reaches two percent. Better
capitalized institutions are generally subject to less onerous regulation and
supervision than banks with less amounts of capital.
The FDIC has adopted regulations implementing the prompt corrective
action provisions of the 1991 Act, which place financial institutions in the
following five categories based upon capitalization ratios: (i) a "well
capitalized" institution has a total risk-based capital ratio of at least 10%, a
Tier I risk-based ratio of at least 6% and a leverage ratio of at least 5%; (ii)
an "adequately capitalized" institution has a total risk-based capital ratio of
at least 8%, a Tier I risk-based ratio of at least 4% and a leverage ratio of at
least 4%; (iii) an "undercapitalized" institution has a total risk-based capital
ratio of under 8%, a Tier I risk-based ratio of under 4% or a leverage ratio of
under 4%; (iv) a "significantly undercapitalized" institution has a total risk-
based capital ratio of under 6%, a Tier I risk-based ratio of under 3% or a
leverage ratio of under 3%; and (v) a "critically undercapitalized" institution
has a leverage ratio of 2% or less. Institutions in any of the three
undercapitalized categories would be prohibited from declaring dividends or
making capital distributions. The FDIC regulations also establish procedures for
"downgrading" an institution to a lower capital category based on supervisory
factors other than capital.
13
<PAGE>
The downgrading of an institution's category is automatic in two
situations: (i) whenever an otherwise well-capitalized institution is subject
to any written capital order or directive; and (ii) where an undercapitalized
institution fails to submit or implement a capital restoration plan or has its
plan disapproved. The Federal banking agencies may treat institutions in the
well-capitalized, adequately capitalized and undercapitalized categories as if
they were in the next lower level based on safety and soundness considerations
relating to factors other than capital levels.
All insured institutions regardless of their level of capitalization are
prohibited by the Federal Deposit Insurance Corporation Improvement Act of 1991
(the "FDIC Act") from paying any dividend or making any other kind of capital
distribution or paying any management fee to any controlling person if
following the payment or distribution the institution would be
undercapitalized. While the prompt corrective action provisions of the FDIC
Act contain no requirements or restrictions aimed specifically at adequately
capitalized institutions, other provisions of the FDIC Act and the agencies'
regulations relating to deposit insurance assessments, brokered deposits and
interbank liabilities treat adequately capitalized institutions less favorably
than those that are well-capitalized.
Under the FDIC's regulations, all of the Subsidiary Banks are "well
capitalized" institutions.
Support of Subsidiary Banks
Under the FRB policy, ABC is expected to act as a source of financial
strength to, and to commit resources to support, each of the Subsidiary Banks.
This support may be required at times when, absent such FRB policy, ABC may not
be inclined to provide it. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a Federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
As a result of the enactment of Section 206 of the Financial
Institutions Reform, Recovery and Enforcement Act ("FIRREA") on August 9, 1989,
a depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August 9,
1989 in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to any
commonly controlled FDIC-insured depository institution "in danger of default"
is defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulator assistance.
FDIC Insurance Assessments
The Subsidiary Banks are subject to FDIC deposit insurance assessments
for the Bank Insurance Fund (the "BIF"). Since 1989, the annual FDIC deposit
insurance assessments increased from $.083 per $100 of deposits to a minimum
level of $.23 per $100, an increase of 177 percent. The FDIC implemented a risk-
based assessment system whereby banks are assessed on a sliding scale depending
on their placement in nine separate supervisory categories, from $.23 per $100
of deposits for the healthiest banks (those with the highest capital, best
management and best overall condition) to as much as $.31 per $100 of deposits
for the less-healthy institutions, for an average $.259 per $100 of deposits.
14
<PAGE>
On August 8, 1995, the FDIC lowered the BIF premium for "healthy" banks
83% from $.23 per $100 in deposits to $.04 per $100 in deposits, while
retaining the $.31 level for the riskiest banks. The average assessment rate
was therefore reduced from $.232 to $.044 per $100 of deposits. The new rate
took effect on September 29, 1995. On November 14, 1995, the FDIC again
lowered the BIF premium for "healthy" banks from $.04 per $100 of deposits to
zero for the highest rated institutions (92% of the industry). All of the
Subsidiary Banks, with the exception of Central Bank, are insured under the BIF
fund and it is expected that they will be required to pay only the legally
required annual minimum payments during 1997.
On October 8, 1996, the FDIC implemented a 65.7 basis point special
assessment in order to bring the Savings Association Insurance Fund ("SAIF") to
the legally mandated 1.25% reserve ratio. The Subsidiary Banks' aggregate SAIF
assessment (on a pre-tax basis), paid on November 27, 1996, was $263,000.
Based on the assessment for the first six months of 1997, it is expected that
Central Bank will be assessed approximately $36,000 for 1997.
Recent Legislative and Regulatory Action
On April 19,1995, the four Federal bank regulatory agencies adopted
revisions to the regulations promulgated pursuant to the Community Reinvestment
Act (the "CRA"), which are intended to set distinct assessment standards for
financial institutions. The revised regulations contains three evaluation
tests: (i) a lending test which will compare the institution's market share of
loans in low- and moderate-income areas to its market share of loans in its
entire service area and the percentage of a bank's outstanding loans to low-
and moderate-income areas or individuals; (ii) a services test which will
evaluate the provisions of services that promote the availability of credit to
low- and moderate-income areas; and (iii) an investment test, which will
evaluate an institution's record of investments in organizations designed to
foster community development, small- and minority-owned businesses and
affordable housing lending, including state and local government housing or
revenue bonds. The regulation is designed to reduce some paperwork
requirements of the current regulations and provide regulators, institutions
and community groups with a more objective and predictable manner with which to
evaluate the CRA performance of financial institutions. The rule became
effective on January 1, 1996, at which time evaluation under streamlined
procedures were schedule to begin for institutions with assets of less than
$250 million
$1 billion.
interpret the rules, it is unclear what effect, if any, these regulations will
have on ABC and the Subsidiary Banks. Congress and various Federal agencies
(including, in
Housing and Urban Development, the Federal Trade Commission and the Department
of Justice) (collectively, the "Federal Agencies") responsible for implementing
the nation's fair lending laws have been increasingly concerned that
prospective home buyers and other borrowers are experiencing discrimination in
their efforts to obtain loans. In recent years, the Department of Justice has
filed suit against financial institutions, which it determined had
discriminated, seeking fines and restitution for borrowers who allegedly
suffered from discriminatory practices. Most, if not all, of these suits have
been settled (some for substantial sums) without a full adjudication on the
merits.
15
<PAGE>
On March 8, 1994, the Federal Agencies, in an effort to clarify what
constitutes lending discrimination and specify the factors the agencies will
consider in determining if lending discrimination exists, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Opportunity Act and the Fair Housing Act. In the policy statement,
three methods of proving lending discrimination were identified: (i) over
evidence of discrimination, when a lender blatantly discriminates on a
prohibited basis; (ii) evidence of disparate treatment, when a lender treats
applicants differently based on a prohibited factor even where there is no
showing that the treatment was motivated by prejudice or a conscious intention
to discriminate against a person; and (iii) evidence of disparate impact, when
a lender applies a practice uniformly to all applicants, but the practice has a
discriminatory effect, even where such practices are neutral on their face and
are applied equally, unless the practice can be justified on the basis of
business necessity.
On September 23, 1994, President Clinton signed the Reigle Community
Development and Regulatory Improvement Act of 1994 (the "Regulatory Improvement
Act"). The Regulatory Improvement Act contains funding for community
development projects through banks and community development financial
institutions and also numerous regulatory relief provisions designed to
eliminate certain duplicative regulations and paperwork requirements. On
September 29, 1994, President Clinton signed the Reigle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the "Federal Interstate Bill") which
amended Federal law to permit bank holding companies to acquire existing banks
in any state effective September 29, 1995, and to permit any interstate bank
holding company to merge its various bank subsidiaries into a single bank with
interstate branches after May 31, 1997. States have the authority to authorize
interstate branching prior to June 1, 1997, or, alternatively, to opt out of
interstate branching prior to that date. The Georgia Financial Institutions
Code was amended in 1994 to permit the acquisition of a Georgia bank or bank
holding company by out-of-state bank holding companies beginning July 1, 1995.
On September 29, 1995, the interstate banking provisions of the Georgia
Financial Institutions Code were superseded by the Federal Interstate Bill.
In February 1996, the Georgia legislature adopted the "Georgia
Interstate Branching Act," which when signed by the Governor, will permit
Georgia-based banks and bank holding companies owning or acquiring banks outside
of Georgia and all non-Georgia banks and bank holding companies owning or
acquiring banks in Georgia the right to merge any lawfully acquired bank into an
interstate branch network. The Georgia Interstate Branching Act also allows
banks to establish de novo branch banks on a limited basis beginning July 1,
1996. Beginning July 1, 1998, the number of de novo bank branches which may be
established will no longer be limited.
Monetary Policy
The earnings of ABC are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States government and its agencies.
The FRB has had, and will continue to have, an important impact on the
operating results of commercial banks through its power to implement national
monetary policy in order, among other things, to mitigate recessionary and
inflationary pressures by regulating the national money supply. The techniques
used by the Federal Reserve Bank include setting the reserve requirements of
member banks and establishing the discount rate on member bank borrowings. The
FRB also conducts open market transactions in United States government
securities.
16
<PAGE>
Future Requirements
Statutes and regulations are regularly introduced which contain
wide-ranging proposals for altering the structure, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or in what form any proposed statute or regulation will be adopted or
the extent to which the business of ABC or any of the Subsidiary Banks may be
affected by such statute or regulation.
ITEM 2. PROPERTIES
The principal properties of the Company consist of the properties of the
Banks. For a description of the properties of the Banks, see "Item 1 -Business
of the Company and Subsidiary Banks - Properties" included elsewhere in this
Annual Report.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiary banks is a party to, nor
is any of their property the subject of, any material pending legal proceedings,
other than ordinary routine proceedings incidental to the business of the Banks,
nor to the knowledge of the management of the Company are any such proceedings
contemplated or threatened against it or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of 1996.
17
<PAGE>
ITEM 4.5 EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
executive officers of the Company.
<TABLE>
<CAPTION>
Name, Age and Position with the Principal Occupation for the Last Five Years
Term as Officer Registrant and Other Directorships
- ------------------------ -------------------------- ---------------------------------------------------------------
<S> <C> <C>
Kenneth J. Hunnicutt; 60; President, Chief Executive Chief Executive Officer of ABC Bancorp since 1994 and President
Officer since 1981 Officer and Director since 1981. Mr. Hunnicutt served as Senior President of American
Bank from 1989 to 1991 and as President of American Bank from
1975 to 1989 and currently serves as a director of each of the
Company's subsidiary banks. Mr. Hunnicutt is the Chairman of the
Board of Thomas Bank and Cairo Bank.
W. Edwin Lane, Jr; 43: Executive Vice President and Executive Vice President and Chief Financial Officer of ABC
Officer since Chief Financial Officer Bancorp since January 1, 1995. Mr. Lane served as Controller of
January 1, 1995 First Liberty Bank, Macon, Georgia from August 1992 to December
1994. Mr. Lane was associated with Mauldin & Jenkins, Certified
Public Accountants, from 1985 to 1992, where he served as an
audit manager from 1989 to 1992.
Sidney J. Wooten, III; 43: Executive Vice President and Executive Vice President and Chief Operating Officer of ABC
Officer since Chief Operating Officer Bancorp from August 1996 to present. From June 1991 until
August 1996 and Director December 31, 1995, Mr. Wooten served as the President and Chief
Executive Officer of First National Bank of White County,
Georgia. From December 1995 until August 1996, Mr. Wooten served
as Senior Vice President of First National Bancorp.
Officers serve at the discretion of the Board of Directors.
</TABLE>
18
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) The following table sets forth: (a) the high and low bid prices for the
common stock as quoted on Nasdaq-NMS during 1995 and 1996; and (b) the amount
of quarterly dividends declared on the common stock during the periods
indicated.
<TABLE>
<CAPTION>
Calendar Period Bid Prices Cash
--------------- ---------------------------- Dividends
1996 Low High Declared
--------------- ------- -------- ---------
<S> <C> <C> <C>
First quarter $ 14 $ 14-1/4 $ .10
Second quarter 14 18-1/4 .10
Third quarter 17-1/2 19-1/4 .10
Fourth quarter 16-3/4 19-5/8 .10
Calendar Period Bid Prices Cash
--------------- ---------------------------- Dividends
1995 Low High Declared
--------------- ------- -------- ---------
First quarter $ 9 $ 10-1/8 $ .07-1/2
Second quarter 9-1/2 11-5/8 .07-1/2
Third quarter 11-3/8 14-1/2 .10
Fourth quarter 13-1/2 14-3/4 .10
</TABLE>
(b) As of March 1, 1997, there were approximately 1,350 holders of record
of the Common Stock.
(c) The Company paid an annual dividend on its Common Stock of $.40 and $.35
per share for fiscal years 1996 and 1995, respectively.
19
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected consolidated financial information
for the Company. The data set forth below are derived from the audited
consolidated financial statements of the Company. The selected financial data
should be read in conjunction with, and are qualified in their entirety by, the
Consolidated Financial Statements and the Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars in Thousands, Except Per Share Data)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Total assets $635,032 $491,139 $424,179 $389,874 $365,780
Total loans 438,390 305,242 270,990 232,209 214,410
Total deposits 545,738 432,181 375,129 346,897 328,737
Investment securities 118,138 84,505 80,401 77,045 60,647
Shareholders' equity 57,674 46,771 41,082 30,070 28,963
Selected Income Statement Data:
Interest income $ 47,776 $ 38,231 $ 30,548 $ 27,882 $ 23,446
Interest expense 21,135 16,225 11,782 11,267 10,482
-------- -------- -------- -------- --------
Net interest income 26,641 22,006 18,766 16,615 12,964
Provision for loan losses 1,894 1,231 955 1,560 1,596
Other income 6,284 4,674 4,273 4,011 3,094
Other expenses 21,663 16,921 15,930 14,734 11,885
-------- -------- -------- -------- --------
Income before tax 9,368 8,528 6,154 4,332 2,577
Income tax expense 2,667 2,611 1,837 1,107 650
-------- -------- -------- -------- --------
Net income before minority interest
and cumulative effect 6,701 5,917 4,317 3,225 1,927
Minority interest - - - 76 64
-------- -------- -------- -------- --------
Net income before cumulative effect 6,701 5,917 4,317 3,149 1,863
Cumulative effect - - - 346
-------- -------- -------- -------- --------
Net income $ 6,701 $ 5,917 $ 4,317 $ 3,495 $ 1,863
======== ======== ======== ======== ========
Per Share Data:
Net income before cumulative effect $ 1.29 $ 1.22 $ 0.98 $ 0.79 $ 0.46
Net income 1.29 1.22 0.98 0.87 0.46
Book value 10.69 9.64 8.55 7.88 7.22
Tangible book value 9.35 9.15 7.98 7.09 6.41
Dividends 0.40 0.35 0.29 0.29 0.29
Profitability Ratios:
Net income to average total assets 1.21% 1.34% 1.10% 0.95% 0.64%
Net income to average stockholders'
equity 12.53 13.44 13.28 12.00 6.66
Net interest margin 5.29 5.50 5.20 4.99 5.05
</TABLE>
20
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars in Thousands, Except Per Share Data)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loan Quality Ratios:
Net charge-offs to total loans 0.39% 0.17% 0.26% 0.77% 0.66%
Reserve for loan losses to total loans
and OREO 1.57 1.79 1.76 1.94 2.20
Nonperforming assets to total loans
and OREO 1.43 1.13 1.58 2.03 3.77
Reserve for loan losses to
nonperforming loans 127.92 201.03 115.06 119.64 67.49
Reserve for loan losses to total
nonperforming assets 109.25 158.91 111.77 95.55 58.26
Liquidity Ratios:
Loans to total deposits 80.33 70.63 72.24 66.94 65.22
Loans to average earnings assets 87.10 76.25 75.12 69.68 83.45
Noninterest-bearing deposits to
total deposits 14.92 17.28 16.81 14.47 14.46
Capital Adequacy Ratios:
Common stockholders' equity to
total assets 9.08 9.52 9.69 7.71 7.92
Total stockholders' equity to total assets 9.08 9.52 9.69 7.71 7.92
Dividend payout ratio 31.01 28.69 29.59 33.33 63.04
</TABLE>
21
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION (Continued)
SELECTED QUARTERLY FINANCIAL DATA:
<TABLE>
<CAPTION>
Quarters Ended December 31, 1996
-----------------------------------------------------------
4 3 2 1
-------- -------- ------- --------
(Dollars in Thousands, Except Per Share Data)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Selected Income Statement Data:
Interest income $13,509 $13,308 $10,861 $10,098
Net interest income 7,468 7,268 6,279 5,626
Net income 1,483 1,701 1,851 1,666
Per Share Data:
Net income 0.27 0.32 0.37 0.33
Dividends 0.10 0.10 0.10 0.10
Quarters Ended December 31, 1995
-----------------------------------------------------------
4 3 2 1
-------- -------- ------- --------
(Dollars in Thousands, Except Per Share Data)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Selected Income Statement Data:
Interest income $10,187 $ 9,790 $ 9,448 $ 8,806
Net interest income 5,822 5,449 5,455 5,280
Net income 1,593 1,508 1,429 1,387
Per Share Data:
Net income 0.33 0.31 0.29 0.29
Dividends 0.10 0.10 0.075 0.075
</TABLE>
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company's principal asset is its ownership of the Subsidiary Banks.
Accordingly, its results of operations are primarily dependent upon the results
of operations of the Subsidiary Banks. The Subsidiary Banks conduct a commercial
banking business which consists of attracting deposits from the general public
and applying those funds to the origination of commercial, consumer and real
estate loans (including commercial loans collateralized by real estate). The
Subsidiary Banks' profitablity depends primarily on net interest income, which
is the difference between interest income generated from interest-earning assets
(i.e., loans and investments) less the interest expense incurred on interest-
bearing liabilities (i.e., customer deposits and borrowed funds). Net interest
income is affected by the relative amounts of interest-earning assets and
interest-bearing liabilities, and the interest rate paid and earned on these
balances. Net interest income is dependent upon the Subsidiary Banks' interest
rate spread, which is the difference between the average yield earned on its
interest-earning assets and the average rate paid on its interest-bearing
liabilities. When interest-earning assets approximates or exceeds interest-
bearing liabilities, any positive interest rate spread will generate interest
income. The interest rate spread is impacted by interest rates, deposit flows
and loan demand. Additionally, and to a lesser extent, the profitability of the
Subsidiary Banks is affected by such factors as the level of noninterest income
and expenses, the provision for loan losses and the effective tax rate.
Noninterest income consists primarily of service charges on deposit accounts and
other fees and income from the sale of loans and investment securities.
Noninterest expenses consist of compensation and benefits, occupancy-related
expenses, deposit insurance premiums paid to the FDIC and other operating
expenses.
The results of operations for the years ended December 31, 1996, 1995
and 1994 include the which were acquired in 1996 and accounted for as poolings
of interest. The results of operations for the year ended December 31, 1996 also
include the operations of Southland Bank since June 21, 1996, the date of its
acquisition, which transaction was accounted for as a purchase. Because the
acquisition of Southland Bank was accounted for as a purchase transaction,
significant amounts of increases in average balances and income and expense data
are attributable to the inclusion of the operations of Southland Bank from June
21, 1996, whereas no operations of Southland Bank have been included in the
consolidated financial data for 1995 and 1994.
Results of Operations for Years Ended December 31, 1996, 1995 and 1994
ABC's results of operations are determined by its ability to effectively
manage interest income and expense, to minimize loan and investment losses, to
generate noninterest income and to control noninterest expense. Since interest
rates are determined by market forces and economic conditions beyond the
control of ABC, the ability to generate net interest income is dependent upon
the ability of the Subsidiary Banks to obtain an adequate spread between the
rate earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest income
divided by average earning assets.
23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The primary component of consolidated earnings is net interest income,
or the difference between interest income on interest-earning assets and
interest paid on interest-bearing liabilities. The net interest margin is net
interest income expressed as a percentage of average interest-earning assets.
Interest-earning assets consist of loans, investment securities and Federal
funds sold. Interest-bearing liabilities consist of deposits, Federal Home Loan
Bank borrowings and other short-term borrowings. A portion of interest income is
earned on tax-exempt investments such as state and municipal bonds. In an effort
to state this tax-exempt income and its resultant yields on a basis comparable
to all other taxable investments, an adjustment is made to analyze this income
on a taxable-equivalent basis.
The net interest margin decreased 20 basis points or 3.58% to 5.39% in
1996 as compared to 5.59% in 1995. This decrease in net interest margin
resulted from a decrease of 5 basis points in average yield earned on
interest-earning assets accompanied by an increase of 8 basis points in average
rate paid on interest-bearing liabilities. Interest earned on loans decreased
19 basis points and interest earned on Federal funds sold decreased 90 basis
points, while interest paid on interest-bearing deposits increased 9 basis
points. Net interest income on a taxable-equivalent basis was $27,109,000 in
1996 as compared to $22,379,000 in 1995, representing an increase of
$4,730,000 or 21.14%. Taxable-equivalent net interest income of Southland Bank
accounted for $2,782,000 or approximately 59% of the total increase. Net
interest income on a taxable-equivalent basis was $22,379,000 in 1995 as
compared to $19,172,000 in 1994, representing an increase of $3,207,000 or
16.73%. Net interest margin increased 5.27% to 5.59% in 1995 from 5.31% in
1994 on an increase of 10.97% in average interest-earning assets and an
increase of 9.37% in average interest-bearing liabilities. Although interest
earned on earning assets increased 106 basis points to 9.64% in 1995 as
compared to 8.58% in 1994, interest paid on interest-bearing liabilities
increased 99 basis points to 4.83% in 1995 compared to 3.84% in 1994. Interest
rates were very aggressive in 1995 as compared to 1994.
Average interest-earning $503,295,000 in 1996 from $400,325,000 in 1995.
Average interest-earning assets of Southland Bank accounted for $58,454,000 or
approximately 57% of the total increase. Average loans increased $87,312,000;
average investments increased $21,314,000; and average Federal funds sold
decreased $5,656,000. The increase in average interest-earning assets was funded
by an increase in average deposits of $87,824,000 or 22.96% to $470,369,000 in
1996 from $382,545,000 in 1995. Average deposits of Southland Bank accounted for
$49,406,000 or approximately 56% of the total increase in average deposits. By
comparison, average interest-earning assets increased by $39,560,000 or 10.97%
to $400,325,000 in 1995 from $360,765,000 in 1994. During 1995, average deposits
increased $31,589,000 or 9.00%, to $382,545,000 from $350,956,000 in 1994.
Approximately 14% of the average deposits were noninterest-bearing deposits in
1996. In 1995, approximately 15% of the total deposits were noninterest-bearing
deposits.
The allowance for loan losses represents a reserve for potential losses
in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with a
particular emphasis on nonaccruing, past due and other loans that management
believes require attention.
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The provision for loan losses is a charge to earnings in the current
period to replenish the allowance and maintain it at a level management has
determined to be adequate. The provision for loan losses charged to earnings
amounted to $1,894,000 in 1996, $1,231,000 in 1995 and $955,000 in 1994. The
increase in the provision for loan losses in 1996 of $663,000, or 53.86%, as
compared with 1995 was accompanied by an increase of 43.62% in total loans in
1996 and an increase in the allowance for loan losses of 25.33%. The allowance
for loan losses increased $1,389,000 to $6,873,000 at December 31, 1996 from
$5,484,000 at December 31, 1995. The addition of $1,211,000 to the allowance
for loan losses upon acquisition of Southland Bank accounted for the major
portion of the increase in the allowance. Net charge-offs represented 90.60%
of the provision for loan losses in 1996 as compared to 42.49% in 1995. The
loan charge-offs for 1996 represented .45% of average loans outstanding during
the year as compared to .18% for 1995 and .27% for 1994. At December 31, 1996,
the allowance for loan losses was 1.57% of total loans outstanding as compared
to an allowance for loan losses of 1.80% of total loans outstanding at December
31, 1995 and 1.76% of total loans outstanding at December 31, 1994. The
determination of the allowance rests upon management's judgment about factors
affecting loan quality and assumptions about the local and national economy.
Management considers the year-end allowance for loan losses adequate to cover
potential losses in the loan portfolio.
Average total assets increased $112,035,000 or 25.46% to $552,023,000 in
1996 as compared to $439,988,000 in 1995. Average total assets of Southland Bank
accounted for $66,295,000 or approximately 59% of the increase in average total
assets. The increase in average total assets was accompanied by an increase in
average deposits of $87,824,000 or 22.96%, of which $49,406,000 was attributable
to average deposits of Southland Bank. Average total assets increased
$47,186,000 or 12.01% to $439,988,000 in 1995 as compared to $392,802,000 in
1994 and was accompanied by an increase in average total deposits of $31,589,000
or 9.00% to $382,545,000 in 1995 from $350,956,000 in 1994.
25
<PAGE>
SELECTED STATISTICAL INFORMATION OF ABC BANCORP
The following statistical information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and the financial statements and related notes included elsewhere in
this Annual Report and in the documents incorporated herein by reference.
Average Balances and Net Income Analysis
The following tables set forth the amount of the ABC's interest income
or interest expense for each category of interest-earning assets and interest-
bearing liabilities and the average interest rate for total interest-earning
assets and total interest-bearing liabilities, net interest spread and net yield
on average interest-earning assets. Federally tax-exempt income is presented on
a taxable-equivalent basis assuming a 34% Federal tax rate.
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-----------------------------------------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expense Rate Paid Balance Expense Rate Paid
--------- -------- --------- ------- --------- --------- -------- -------- ---------
(Dollars in Thousands)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned
interest $380,527 $40,711 10.70% $293,215 $31,929 10.89% $256,970 $25,239 9.82%
Investment securities:
Taxable 84,454 5,197 6.15 69,230 4,113 5.94 67,190 3,618 5.38
Nontaxable 18,996 1,377 7.25 12,906 1,098 8.51 14,093 1,194 8.47
Federal funds sold 19,318 959 4.96 24,974 1,464 5.86 22,512 903 4.01
-------- ------- -------- ------- -------- -------
Total interest-earning
assets 503,295 48,244 9.59 400,325 38,604 9.64 360,765 30,954 8.58
-------- ------- -------- ------- -------- -------
Noninterest-earning assets:
Cash 23,945 20,066 20,290
Allowance for loan losses (6,358) (5,217) (4,986)
Unrealized loss on avail-
able for sale securities (348) (175) (387)
Other assets 31,489 24,989 17,120
-------- -------- --------
Total noninterest-
earning assets 48,728 39,663 32,037
-------- -------- --------
Total assets $552,023 $439,988 $392,802
======== ======== ========
</TABLE>
26
<PAGE>
Average Balances and Net Income Analysis (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expensse Rate Paid Balance Expense Rate Paid
-------------------------------------------------------------------------------------------------
(Dollars in Thousands)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest-bearing
demand deposits $138,749 $ 4,246 3.06% $114,574 $ 3,534 3.08% $123,301 $3,491 2.83%
Time deposits 267,269 15,500 5.80 211,206 12,079 5.72 177,097 7,943 4.49
Other short-term borrowings 5,713 221 3.87 5,560 301 5.41 3,477 111 3.19
Other borrowings 19,113 1,168 6.11 4,332 311 7.18 3,052 237 7.77
-------- ------- -------- ------- -------- ------
Total interest-bearing
liabilities 430,844 21,135 4.91 335,672 16,225 4.83 306,927 11,782 3.84
-------- ------- -------- ------- -------- ------
Noninterest-bearing liabilities
and stockholders' equity:
Demand deposits 64,351 56,765 50,558
Other liabilities 3,328 3,538 2,803
Stockholders' equity 53,500 44,013 32,514
-------- -------- --------
Total noninterest-bearing
liabilities and
stockholders' equity 121,179 104,316 85,875
-------- -------- --------
Total liabilities and
stockholders' equity $552,023 $439,988 $392,802
======== ======== ========
Interest rate spread 4.68% 4.81% 4.74%
===== ==== ====
Net interest income $27,109 $22,379 $19,172
======= ======= ======
Net interest margin 5.39% 5.59% 5.31%
===== ==== ====
</TABLE>
27
<PAGE>
Rate and Volume Analysis
The following table reflects the changes in net interest income
resulting from changes in interest rates and from asset and liability volume.
Federally tax-exempt interest is presented on a taxable-equivalent basis
assuming a 34% Federal tax rate. The change in interest attributable to rate has
been determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to the change in average
balances outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
----------------------------------- --------------------------------------
Changes Due To Changes Due To
Increase -------------------- Increase ---------------------
(Decrease) Rate Volume (Decrease) Rate Volume
---------- -------- ------- ---------- -------- --------
(Dollars in Thousands)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans $ 8,782 $ (726) $ 9,508 $ 6,690 $ 3,130 $ 3,560
Interest on securities:
Taxable 1,084 180 904 495 385 110
Nontaxable 279 (239) 518 (96) 5 (101)
Interest on Federal funds sold (505) (173) (332) 561 462 99
-------- -------- -------- ------- ------ --------
Total interest income 9,640 (958) 10,598 7,650 3,982 3,668
-------- -------- -------- ------- ------ --------
Expense from interest-bearing
liabilities:
Interest on savings and interest-
bearing demand deposits 712 (34) 746 43 290 (247)
Interest on time deposits 3,421 215 3,206 4,136 2,606 1,530
Interest on short-term borrowings (80) (88) 8 190 124 66
Interest on other borrowings 857 (204) 1,061 74 (25) 99
-------- -------- -------- ------- ------ --------
Total interest expense 4,910 (111) 5,021 4,443 2,995 1,448
-------- -------- -------- ------- ------ --------
Net interest income $ 4,730 $ (847) $ 5,577 $ 3,207 $ 987 $ 2,220
======== ======== ======== ======= ====== ========
</TABLE>
Noninterest Income
The most significant increase in noninterest income were increases in
service charges on deposit accounts and other income. The increase in service
charges on deposit accounts resulted from on increase in average deposits of
$87,824,000 of which $49,406,000 was attributable to the average deposits of
Southland Bank. The increase in service charges on deposit accounts of
$250,000 (7.32%), in 1995 over 1994 resulted from an increase in average
deposits of $31,589,000 (9.00%). Total other income increased $644,000 in 1996
over 1995 of which $505,000 was attributable to other income of Southland Bank.
28
<PAGE>
Noninterest Income (Continued)
Following is a comparison of noninterest income for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1996 1995 1994
------ ------- -------
(Dollars in Thousands)
----------------------------
<S> <C> <C> <C>
Service charges on deposit accounts $4,554 $3,666 $3,416
Other service charges, commissions and fees 500 422 336
Other income 1,230 586 521
------ ------ ------
$6,284 $4,674 $4,273
====== ====== ======
</TABLE>
Noninterest Expense
Salaries and employee benefits increased $2,147,000 or 25.09% in 1996
over 1995, of which $1,202,000 was attributable to Southland Bank. The remaining
increase in salaries and employee benefits resulted from normal increases in
salaries and bonuses and the addition of several employees by the parent
company, including three senior executives. Equipment and occupancy expense
increased $497,000 or 19.56% in 1996 over 1995, of which $366,000 was
attributable to Southland Bank. Amortization of intangible assets increased
$177,000 in 1996 over 1995. The entire amount of the increase resulted from the
amortization of the excess of purchase price over net book value of assets
acquired upon the acquisition of Southland Bank which was accounted for as a
purchase transaction. Merger and acquisition expense of $708,000 in 1996
resulted from the acquisition of four financial institutions during 1996.
Stationery and supplies expense increased $227,000 in 1996 over 1995, of which
$81,000 was attributable to Southland. Also contributing to the increase in
stationery and supplies expense was the implementation of an innovative system
for rendering customer account statements known as an "image item processing
system". All other noninterest expense increased $986,000 in 1996 over 1995, of
which $526,000 was attributable to Southland Bank. Following is an analysis of
noninterest expense for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
------- ------- --------
(Dollars in Thousands)
------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $10,705 $8,558 $7,816
Equipment and occupancy 3,038 2,541 2,454
Merger and acquisition expense 708 - -
Amortization of intangible assets 487 310 310
Data processing fees 500 486 566
Directors fees 462 424 395
FDIC premiums 367 481 801
Stationery and supplies expense 592 365 338
Other expense 4,804 3,756 3,250
------- ------- -------
$21,663 $16,921 $15,930
======= ======= =======
</TABLE>
29
<PAGE>
Asset/Liability Management
A principal objective of ABC's asset/liability management strategy is to
minimize its exposure to changes in interest rates by matching the maturity and
repricing horizons of interest-earning assets and interest-bearing liabilities.
This strategy is overseen in part through the direction of ABC's Asset and
Liability Committee (the "ALCO Committee") which establishes policies and
monitors results to control interest rate sensitivity.
As part of ABC's interest rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are "interest
rate-sensitive" and monitors its interest rate-sensitivity "gap". An asset or
liability is considered to be interest rate sensitive if it will reprice or
mature within the time period analyzed, usually one year or less. The interest
rate-sensitivity gap is the difference between the interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within such time
period. A gap is considered positive when the amount of interest rate-sensitive
assets exceeds the amount of interest rate-sensitive liabilities. A gap is
considered negative when the amount of interest rate-sensitive liabilities
exceeds the interest rate-sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income, while
a positive gap would tend to result in an increase in net interest income.
During a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income, while a positive gap would tend to
adversely affect net interest income. If ABC's assets and liabilities were
equally flexible and moved concurrently, the impact of any increase or decrease
in interest rates on net interest income would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates. with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may not react identically to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition, certain
assets, such as adjustable rate mortgage loans, have features (generally
referred to as "interest rate caps") which limit changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayment and early withdrawal levels also could deviate
significantly from those assumed in calculating the interest-rate gap. The
ability of many borrowers to service their debts also may decrease in the event
of an interest-rate increase.
The following table sets forth the distribution of the repricing of
ABC's earning assets and interest-bearing liabilities as of December 31, 1996,
the interest rate sensitivity gap (i.e., interest rate sensitive assets divided
by interest rate sensitivity liabilities), the cumulative interest rate
sensitivity gap ratio (i.e., interest rate sensitive assets divided by interest
rate sensitive liabilities) and the cumulative sensitivity gap ratio. The table
also sets forth the time periods in which earning assets and liabilities will
mature or may reprice in accordance with their contractual terms. However, the
table does not necessarily indicate the impact of general interest rate
movements on the net interest margin since the repricing of various categories
of assets and liabilities is subject to competitive pressures and the needs of
ABC's customers. In addition, various assets and liabilities indicated as
repricing within the same period may in fact reprice at different times within
such period and at different rates.
30
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1996
-------------------------------------------------------------
Maturing or Repricing Within
-------------------------------------------------------------
Zero to Three One
Three Months to Year to Over
Months One Year Five Years Five Years Total
-------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Earning assets:
Federal funds sold $ 5,120 $ - $ - $ - $ 5,120
Investment securities 14,182 19,390 55,461 29,105 118,138
Loans 185,495 55,328 163,300 34,267 438,390
-------- --------- --------- --------- --------
204,797 74,718 218,761 63,372 561,648
-------- --------- --------- --------- --------
Interest-bearing liabilities:
Interest-bearing demand deposits (1) - 37,229 79,548 - 116,777
Savings (1) - - 43,332 - 43,332
Certificates less than $100,000 77,590 110,451 37,142 - 225,183
Certificates, $100,000 and over 26,909 42,412 9,677 - 78,998
Other short-term borrowings 997 - - - 997
Other borrowings 15,000 8,750 - 450 24,200
-------- --------- --------- --------- --------
120,496 198,842 169,699 450 489,487
-------- --------- --------- --------- --------
Interest rate sensitivity gap $ 84,301 $(124,124) $ 49,062 $ 62,922 $ 72,161
======== ========= ========= ========= ========
Cumulative interest rate sensitivity gap $ 84,301 $ (39,823) $ 9,239 $ 72,161
======== ========= ========= =========
Interest rate sensitivity gap ratio 1.70 0.38 1.29 140.83
======== ========= ========= =========
Cumulative interest rate sensitivity gap ratio 1.70 0.88 1.02 1.15
======== ========= ========= =========
</TABLE>
(1) The Company has found that NOW checking accounts and savings deposits are
generally not sensitive to changes in interest rates and, therefore, it has
placed such liabilities in the "One to Five Years" category. It has also
found that the money-market checking deposits reprice between three months
to one year, on the average.
31
<PAGE>
INVESTMENT PORTFOLIO
The Company manages the mix of asset and liability maturities in an
effort to control the effects of changes in the general level of interest rates
on net interest income. See "--Asset/Liability Management." Except for its
effect on the general level of interest rates, inflation does not have a
material impact on the Company due to the rate variability and short-term
maturities of its earning assets. In particular, approximately 55% of the loan
portfolio is comprised of loans which mature or reprice within one year or less.
Mortgage loans, primarily with five to fifteen year maturities, are also made on
a variable rate basis with rates being adjusted every one to five years.
Additionally, 25% of the investment portfolio matures within one year.
TYPES OF INVESTMENTS
The amortized cost and fair value of investments in securities at
December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
(Dollars in Thousands)
------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1996:
U. S. Government and agency securities $69,618 $232 $(429) $69,421
Mortgage-backed securities 12,391 134 (52) 12,473
State and municipal securities 3,918 58 - 3,976
Other securities 300 - (22) 278
------- ---- ----- -------
$86,227 $424 $(503) $86,148
======= ==== ===== =======
December 31, 1995:
U.S. Government and agency securities $53,363 $430 $ (183) $53,610
Mortgage-backed securities 11,264 173 (15) 11,422
Other securities 300 - (18) 282
------- ---- ------ -------
$64,927 $603 $ (216) $65,314
======= ==== ====== =======
Securities Held to Maturity
December 31, 1996:
U. S. Government and agency securities $11,238 $ - $ (200) $11,038
Mortgage-backed securities 4,326 27 (44) 4,309
State and municipal securities 16,426 493 (28) 16,891
------- ---- ------ -------
$31,990 $520 $ (272) $32,238
======= ==== ====== =======
December 31, 1995:
U. S. Government and agency securities $ 59 $ 1 $ - $ 60
Mortgage-backed securities 4,704 10 (25) 4,689
State and municipal securities 14,428 337 (106) 14,659
------- ---- ------ -------
$19,191 $348 $ (131) $19,408
======= ==== ====== =======
</TABLE>
32
<PAGE>
Maturities
The amounts of investments in securities in each category as of December
31, 1996 are shown in the following table according to contractual maturity
classifications (1) one year or less, (2) after one year through five years, (3)
after five years through ten years, and (4) after ten years.
<TABLE>
<CAPTION>
U. S. TREASURY
AND OTHER U. S.
GOVERNMENT AGENCIES STATE AND
AND CORPORATIONS POLITICAL SUBDIVISIONS
YIELD YIELD
AMOUNT (1) AMOUNT (1) (2)
------- ------ ------- -------
(DOLLARS IN THOUSANDS)
----------------------------------------------------
<S> <C> <C> <C> <C>
MATURITY:
One year or less $21,572 5.98% $ 255 9.77%
After one year through five years 62,331 6.20 6,917 7.28
After five years through ten years 13,116 6.35 8,231 7.55
After ten years 717 6.16 4,999 7.31
------- ---- ------- ----
$97,736 6.17% $20,402 7.44%
======= ==== ======= ====
</TABLE>
(1) Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis
over the life of each security. The weighted average yield for each
maturity range was computed using the acquisition price of each security
in that range.
(2) Yields on securities of state and political subdivisions are stated on a
taxable-equivalent basis, using a tax rate of 34%.
33
<PAGE>
LOAN PORTFOLIO
Types of Loans
Management believes that the Company's loan portfolio is adequately
diversified. The loan portfolio contains no foreign or energy-related loans or
significant concentrations in any one industry, with the exception of
residential real estate mortgages, which constituted approximately 27% of the
Company's loan portfolio as of December 31, 1996. The amount of loans
outstanding at the indicated dates is shown in the following table according to
type of loans.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- --------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial and financial $ 68,283 $ 45,892 $ 38,133 $ 30,886 $ 27,578
Agricultural 34,232 21,704 23,063 14,760 15,622
Real estate - construction 13,542 3,589 3,688 5,787 3,247
Real estate - mortgage, farmland 49,807 46,255 40,290 34,563 26,322
Real estate - mortgage,
commercial 88,854 59,053 47,884 37,469 30,361
Real estate - mortgage, residential 117,022 71,345 65,598 62,101 62,140
Consumer instalment loans 64,433 56,004 50,691 44,324 47,312
Other 2,217 1,400 1,643 2,319 1,828
--------- --------- --------- --------- ---------
438,390 305,242 270,990 232,209 214,410
Less reserve for possible loan losses 6,873 5,484 4,775 4,514 4,735
--------- --------- --------- --------- ---------
Loans, net $ 431,517 $ 299,758 $ 266,215 $ 227,695 $ 209,675
========= ========= ========= ========= =========
</TABLE>
Maturities and Sensitivity to Changes in Interest Rates
Total loans as of December 31, 1996 are shown in the following table
according to maturity or repricing opportunities (1) one year or less, (2)
after one year through five years, and (3) after five years.
<TABLE>
<CAPTION>
(Dollars in
Thousands)
-----------
<S> <C>
Maturity or Repricing Within:
One year or less $ 240,823
After one year through five years 163,300
After five years 34,267
---------
$ 438,390
=========
</TABLE>
34
<PAGE>
The following table summarizes loans at December 31, 1996 with the due
dates after one year which (1) have predetermined interest rates and (2) have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
(Dollars in
Thousands)
-----------
<S> <C>
Predetermined interest rates $ 197,367
Floating or adjustable interest rates 200
---------
$ 197,567
=========
</TABLE>
Records were not available to present the above information in each
category listed in the first paragraph above and could not be reconstructed
without undue burden.
Nonperforming Loans
A loan is placed on nonaccrual status when, in management's judgment,
the collection of the interest income appears doubtful. Interest receivable that
has been accrued in prior years and is subsequently determined to have doubtful
collectibility is charged to the allowance for possible loan losses. Interest on
loans that are classified as nonaccrual is recognized when received. Past due
loans are loans whose principal or interest is past due 90 days or more. In some
cases, where borrowers are experiencing financial difficulties, loans may be
restructured to provide terms significantly different from the original
contractual terms.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------------------------------
(Dollars in Thousands)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis $4,977 $2,271 $3,518 $3,260 $6,396
Instalment loans and term loans contractually 396 457 274 513 620
past due ninety days or more as to interest
or principal payments and still accruing
Loans, the terms of which have been renegotiated - - 358 - -
to provide a reduction or deferral of interest
or principal because of deterioration in the
financial position of the borrower
Loans now current about which there are serious - - - -
doubts as to the ability of the borrower
to comply with present loan repayment items
</TABLE>
In the opinion of management, any loans classified by regulatory
authorities as doubtful, substandard or special mention that have not been
disclosed above do not (i) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity or capital resources, or (ii) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms. Any loans classified by regulatory authorities as loss have
been charged off.
35
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The factors that influence
management's judgment in determining the amount charged to operating expense are
past loan experience, composition of the loan portfolio, evaluation of possible
future losses, current economic conditions and other relevant factors. The
Company's allowance for loan losses was approximately $6,873,000 at December 31,
1996, representing 1.57% of year end total loans outstanding, compared with
$5,484,000 at December 31, 1995, which represented 1.80% of year end total loans
outstanding. The allowance for loan losses is reviewed quarterly based on
management's evaluation of current risk characteristics of the loan portfolio,
as well as the impact of prevailing and expected economic business conditions.
Management considers the allowance for loan losses adequate to cover possible
loan losses on the loans outstanding.
Allocation of the Allowance for Loan Losses
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes the
allowance can be allocated only on an approximate basis. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any other
category.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------
1996 1995 1994
------------------------ ---------------------- --------------------
Percent of Percent of Percent of
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------- ---------- --------- ---------- -------- ---------
(Dollars in Thousands)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
industrial and agricultural $ 1,569 23% $ 1,271 22% $ 1,219 23%
Real estate 2,848 62 1,951 59 1,796 58
Consumer 1,298 15 1,056 19 1,041 19
Unallocated 1,158 - 1,206 - 719 -
------- ---- ------- ---- ------- ----
$ 6,873 100% $ 5,484 100% $ 4,775 100%
======= ==== ======= ==== ======= ====
</TABLE>
36
<PAGE>
The following table presents an analysis of the Company's loan loss
experience for the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $380,527 $293,215 $256,970 $228,607 $180,067
======== ======== ======== ======== ========
Balance of reserve for possible loan losses at
beginning of period $ 5,484 $ 4,776 $ 4,514 $ 4,735 $ 1,859
-------- -------- -------- -------- --------
Charge-offs:
Commercial, financial and agricultural (739) (301) (479) (573) (454)
Real estate (1,242) (103) (338) (1,883) (1,057)
Consumer (275) (562) (450) (472) (346)
Recoveries:
Commercial, financial and agricultural 89 96 100 336 27
Real estate 275 126 265 556 282
Consumer 176 221 209 254 127
-------- -------- -------- -------- --------
Net charge-offs (1,716) (523) (693) (1,782) (1,421)
-------- -------- -------- -------- --------
Additions to reserve charged to operating expenses 1,894 1,231 955 1,561 1,597
-------- -------- -------- -------- --------
Allowance for loan losses of acquired subsidiary 1,211 - - - 2,700
-------- -------- -------- -------- --------
Balance of reserve for possible loan losses $ 6,873 $ 5,484 $ 4,776 $ 4,514 $ 4,735
======== ======== ======== ======== ========
Ratio of net loan charge-offs to average loans .45% .18% .27% .78% .79%
======== ======== ======== ======== ========
</TABLE>
37
<PAGE>
DEPOSITS
Average amount of deposits and average rate paid thereon, classified as
to noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, for the periods indicated are presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1996 1995
------------------------------------------------------
Amount Rate Amount Rate
-------- ------- --------- --------
(Dollars in Thousands)
-------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 64,351 - % $ 56,765 - %
Interest-bearing demand and savings deposits 138,749 3.06 114,574 3.08
Time deposits 267,269 5.80 211,206 5.72
-------- --------
Total deposits $470,369 $382,545
======== ========
</TABLE>
ABC has a large, stable base of time deposits, with little or no
dependence on volatile deposits of $100,000 or more. The time deposits are
principally certificates of deposit and individual retirement accounts obtained
for individual customers.
The amounts of time certificates of deposit issued in amounts of
$100,000 or more as of December 31, 1996, are shown below by category, which is
based on time remaining until maturity of (1) three months or less, (2) over
three through twelve months and (3) over twelve months.
<TABLE>
<CAPTION>
(Dollars in
Thousands)
-----------
<S> <C>
Three months or less $26,909
Over three through twelve months 42,412
Over twelve months 9,677
-------
Total $78,998
=======
</TABLE>
38
<PAGE>
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following rate of return information for the periods indicated is
presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Return on assets (1) 1.21% 1.34% 1.10%
Return on equity (2) 12.53 13.44 13.28
Dividends payout ratio (3) 31.01 28.69 29.59
Equity to assets ratio (4) 9.69 10.00 8.28
</TABLE>
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by net income per share.
(4) Average equity divided by average total assets.
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements
of customers, who may be either depositors desiring to withdraw funds or
borrowers needing assurance that sufficient funds will be available to meet
their credit needs, and the ability of ABC and the Subsidiary Banks to meet
those needs. ABC and the Subsidiary Banks seek to meet liquidity requirements
primarily through management of short-term investments (principally Federal
funds sold) and monthly amortizing loans. Another source of liquidity is the
repayment of maturing single payment loans. In addition, the Subsidiary Banks
maintain relationships with correspondent banks which could provide funds to
them on short notice, if needed.
The liquidity and capital resources of ABC and the Subsidiary Banks are
monitored on a periodic basis by state and Federal regulatory authorities. At
December 31, 1995, the Subsidiary Banks' short-term investments were adequate
to cover any reasonable anticipated immediate need for funds. During 1996, ABC
increased its capital $5,996,000 by the issuance of common stock in connection
with business combinations completed during the year and the exercise of
options by shareholders of pooled subsidiaries prior to merger. It also
increased its capital by retaining net earnings of $5,019,000 after payment of
dividends. After recording a decrease in capital of $112,000 for unrealized
losses on securities available for sale, net of taxes, total capital increased
$10,903,000 during 1996. At December 31, 1996, total capital of ABC amounted
to $57,674,000. ABC and the Subsidiary Banks are aware of no events or trends
likely to result in a material change in their liquidity.
39
<PAGE>
Liquidity and Capital Resources (Continued)
At December 31, 1996, ABC had binding commitments for capital
expenditures of $250,000. The Company anticipates that approximately $4,500,000
will be required for capital expenditures during 1997. As of March 1, 1997, the
Company anticipates that approximately $4,000,000 in cash will be required to
complete purchase of a banking center located in a surrounding area. Additional
expenditures may be required for other mergers and acquisitions. No additional
mergers or acquisitions are being negotiated at present.
In accordance with risk capital guidelines issued by the Federal Reserve
Board, ABC is required to maintain a minimum standard of total capital to
weighted risk assets of 8%. Additionally, all member banks must maintain
"core" or "Tier 1" capital of at least 4% of total assets ("leverage ratio").
Member banks operating at or near the 4% capital level are expected to have
well-diversified risks, including no undue interest rate risk exposure,
excellent control systems, good earnings, high asset quality, and well managed
on- and off-balance sheet activities; and, in general, be considered strong
banking organizations with a composite 1 rating under the CAMEL rating system
of banks. For all but the most highly rated banks meeting the above
conditions, the minimum leverage ratio is to be 4% plus an additional 100 to
200 basis points.
The following table summarizes the regulatory capital levels of the
Company at December 31, 1996.
<TABLE>
<CAPTION>
Actual Required Excess
----------------------- ----------------------- -----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital $ 52,028 9.11% $ 22,844 4.00% $ 29,184 5.11%
Risk-based capital:
Core capital 52,028 11.96 17,401 4.00 34,627 7.96
Total capital 57,484 13.21 34,812 8.00 22,672 5.21
</TABLE>
Each Bank also met its individual regulatory capital requirements at
December 31, 1996.
Commitments and Lines of Credit
In the ordinary course of business, the Banks have granted commitments
to extend credit to approved customers. Generally, these commitments to extend
credit have been granted on a temporary basis for seasonal or inventory
requirements and have been approved by the Banks' Board of Directors. The Banks
have also granted commitments to approved customers for standby letters of
credit. These commitments are recorded in the financial statements when funds
are disbursed or the financial instruments become payable. The Banks use the
same credit policies for these off balance sheet commitments as they do for
financial instruments that are recorded in the consolidated financial
statements. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitment amounts expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
40
<PAGE>
Commitments and Lines of Credit (Continued)
Following is a summary of the commitments outstanding at December 31,
1996 and 1995.
1996 1995
-------- --------
(Dollars in Thousands)
--------------------------
Commitments to extend credit $ 58,693 $ 45,370
Credit card commitments 3,077 2,883
Standby letters of credit 1,331 1,444
-------- --------
$ 63,101 $ 49,697
======== ========
Impact of Inflation
The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles and practices within the banking industry which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation.
41
41
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and its
subsidiaries are included on pages F-1 through F-36 of this Annual Report on
Form 10-K:
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - Years ended December 31, 1996, 1995
and 1994
Consolidated Statements of Stockholders' Equity - Years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended December 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements.
ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE
During 1996, the Company did not change its accountants and there was no
disagreement on any matter of accounting principles or practices for financial
statement disclosure that would have required the filing of a current report on
Form 8-K.
42
<PAGE>
PART III
ITEM 10. DIRECTORS. EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this Item is incorporated by reference to
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this Annual Report ("ABC's Proxy Statement").
Information concerning the Company's executive officers is included in
Item 4.5 of Part I of this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
ABC's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by reference to
ABC's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
ABC's Proxy Statement.
43
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Item 13(a) 1., 2. and 3.
(a) The following documents are filed as part of this report:
1. Financial statements:
(a) ABC Bancorp and Subsidiaries:
(i) Consolidated Balance Sheets - December 31, 1996 and
1995
(ii) Consolidated Statements of Income - Years ended
December 31, 1996, 1995 and 1994
(iii) Consolidated Statements of Stockholders' Equity - Years
ended December 31, 1996, 1995 and 1994
(iv) Consolidated Statements of Cash Flows - Years ended
December 31, 1996, 1995 and 1994
(v) Notes to Consolidated Financial Statements
(b) ABC Bancorp (Parent Company Only):
Parent Company only financial information has been included
in Note 14 of Notes to Consolidated financial statements.
2. Financial statement schedules:
All schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.
44
<PAGE>
3. Exhibits required by Item 601 of Regulation S-K:
Exhibit No. Description
3.1 Articles of Incorporation of ABC, as amended (incorporated by
reference to Exhibit 2.1 to ABC's Regulation A Offering
Statement on Form 1-A (File No. 24A-2630) filed August 14,
1987).
3.2 Amendment to Amended Articles of Incorporation dated May 26,
1995 (incorporated by reference to Exhibit 3.1.1 to ABC's Form
10-K filed March 28, 1996).
3.3 Amendment to Amended Articles of Incorporation (filed as Exhibit
4.3 to ABC's Registration on Form S-4 (Registration No. 333-
08301), filed with the Commission on July 17, 1996 and
incorporated herein by reference).
3.4 Bylaws of ABC, as amended (incorporated by reference to Exhibit
2.2 to ABC's Regulation A Offering Statement on Form 1-A (File
No. 24A-2630) filed August 14, 1987.
10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to ABC's
Regulation A Offering Statement on Form 1-A (File No. 24A-2630),
filed with the Commission on August 14, 1987 and incorporated
herein by reference).
10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated
October 17, 1985 (filed as Exhibit 5.2 to ABC's Regulation A
Offering Statement on Form 1-A (File No. 24A-2630), filed with
the Commission on August 14, 1987 and incorporated herein by
reference).
10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated
December 16, 1986 (filed as Exhibit 5.3 to ABC's Regulation A
Offering Statement on Form 1-A (File No. 24A-2630), filed with
the Commission on August 14, 1987 and incorporated herein by
reference).
10.4 Security Deed in favor of M.I.A., Co. dated December 31, 1984
(filed as Exhibit 5.4 to ABC's Regulation A Offering Statement
on Form 1-A (File No. 24A-2630), filed with the Commission on
August 14, 1987 and incorporated herein by reference).
10.5 Loan Agreement and Master Term Note dated December 30, 1986
(filed as Exhibit 5.5 to ABC's Regulation A Offering Statement
on Form 1-A (File No. 24A-2630), filed with the Commission on
August 14, 1987 and incorporated herein by reference).
10.6 Executive Salary Continuation Agreement dated February 14, 1984
(filed as Exhibit 10.6 to ABC's Annual Report on Form 10-KSB
(File Number 2-71257), filed herewith with the Commission on
March 27, 1989 and incorporated herein by reference.
10.7 1992 Incentive Stock Option Plan and Option Agreement for K. J.
Hunnicutt (filed as Exhibit 10.7 to ABC's Annual Report on Form
10-KSB (File Number 0-16181), filed with the Commission on March
30, 1993 and incorporated herein by reference).
45
<PAGE>
Exhibit No Description
10.8 Executive Employment Agreement with Kenneth J. Hunnicutt dated
September 20, 1994 (filed as Exhibit 10.8 to ABC's Annual Report
on Form 10-KSB (File Number 0-016181), filed with the Commission
on March 30, 1995 and incorporated herein by reference).
10.9 Executive Consulting Agreement with Eugene M. Vereen dated
September 20, 1994 (filed as Exhibit 10.9 to ABC's Annual Report
on Form 10-KSB (File Number 0-016181), filed with the Commission
on March 30, 1995 and incorporated herein by reference).
10.10 Agreement and Plan of Merger by and between ABC and Southland
Bancorporation dated as of December 18, 1995 (filed as Exhibit
10.10 to ABC's Annual Report on Form 10-K (File No. 0-16181),
filed with the Commission on March 28, 1996 and incorporated
herein by reference), and Amendment No. 1 thereto dated as of
April 16,1996 (filed as part of Appendix A to Amendment No. 1 to
ABC's Registration on Form S-4 (Registration No. 333-2387),
filed with the Commission on May 21, 1996 and incorporated
herein by reference).
10.11 Agreement and Plan of Merger by and between ABC and Central
Bankshares, Inc., dated as of December 29, 1995 (filed as
Exhibit 10.11 to ABC's Annual Report on Form 10-K (File No. 0-
16181), filed with the Commission on March 28, 1996 and
incorporated herein by reference), and Amendment No. 1 thereto
dated as April 26, 1996 (filed as part of Appendix A to ABC's
Registration on Form S-4 (Registration No. 333-05861), filed
with the Commission on June 12, 1996 and incorporated herein by
reference).
10.12 Agreement and Plan of Merger by and between ABC and First
National Financial Corporation dated as of April 15, 1996 (filed
as Exhibit 10.12 to Amendment No. 1 to ABC's Registration on
Form S-4 (Registration No. 333-2387), filed with the Commission
on May 21, 1996 and incorporated herein by reference).
10.13 Agreement and Plan of Merger by and between ABC and M & F
Financial Corporation dated as of September 12, 1996 (filed as
Appendix A to ABC's Registration on Form S-4 (Registration No.
333-14649), filed with the Commission on October 23, 1996 and
incorporated herein by reference).
10.14 Executive Employment Agreement with Sidney J. Wooten, III dated
August 26, 1996.
21.1 Schedule of subsidiaries of ABC Bancorp.
24.1 Power of Attorney relating to this Form 10-K is set forth on the
signature pages of this Form 10-K.
27 Financial Data Schedule.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ABC BANCORP
Date: March 18, 1997 By: /s/ Kenneth J. Hunnicutt
---------------- ----------------------------------------------
Kenneth J. Hunnicutt, President,
Chief Executive Officer and Director
Date: March 18, 1997 By: /s/ W. Edwin Lane, Jr.
---------------- ----------------------------------------------
W. Edwin Lane, Jr., Executive Vice President
and Chief Financial Officer
Date: March 18, 1997 By: /s/ Sidney J. Wooten, III
---------------- ----------------------------------------------
Sidney J. Wooten, III, Executive Vice
President, Chief Operating Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenneth J. Hunnicutt as his attorney-in-fact,
acting with full power of substitution for him in his name, place and stead, in
any and all capacities, to sign any amendments to this Form 10-K and to file the
same, with exhibits thereto, and any other documents in connection therewith,
with the Securities and Exchange Commission and hereby ratifies and confirms all
that said attorney-in-fact, or his substitute or substitutes, may do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Exchange Act, this Form 10-K has
been signed by the following persons in the capacities and on the dates
indicated.
Date: March 18, 1997 By: /s/ Kenneth J. Hunnicutt
---------------- ----------------------------------------------
Kenneth J. Hunnicutt, President, Chief Executive
Officer and Director
Date: March 18, 1997 By: /s/ W. Edwin Lane, Jr.
---------------- ----------------------------------------------
W. Edwin Lane, Jr., Executive Vice President
and Chief Financial Officer
Date: March 18, 1997 By: /s/ Sidney J. Wooten, III
---------------- ----------------------------------------------
Sidney J. Wooten, III, Executive Vice President,
Chief Operating Officer and Director
Date: March 18, 1997 By: /s/ Johnny W. Floyd
---------------- ----------------------------------------------
Johnny W. Floyd, Director
Date: March 18, 1997 By: /s/ J. Raymond Fulp
---------------- ----------------------------------------------
J. Raymond Fulp, Director
Date: March 18, 1997 By: /s/ Willard E. Lasseter
---------------- ----------------------------------------------
Willard E. Lasseter, Director and Chairman
of the Board
47
<PAGE>
Date: March 18, 1997 By: /s/ Bobby B. Lindsey
---------------- ----------------------------------------------
Bobby B. Lindsey, Director
Date: March 18, 1997 By: /s/ Hal L. Lynch
---------------- ----------------------------------------------
Hal L. Lynch, Director
Date: March 18, 1997 By: /s/ Joseph C. Parker
---------------- ----------------------------------------------
Joseph C. Parker, Director
Date: March 18, 1997 By: /s/ Eugene M. Vereen, Jr.
---------------- ----------------------------------------------
Eugene M. Vereen, Jr., Director
Date: March 18, 1997 By: /s/ Doyle Weltzbarker
---------------- ----------------------------------------------
Doyle Weltzbarker, Director and Vice Chairman
of the Board
Date: March 18, 1997 By: /s/ Henry Wortman
---------------- ----------------------------------------------
Henry Wortman, Director
48
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation of ABC, as amended (incorporated by
reference to Exhibit 2.1 to ABC's Regulation A Offering
Statement on Form 1-A (File No. 24A-2630) filed August 14,
1987).
3.2 Amendment to Amended Articles of Incorporation dated May 26,
1995 (incorporated by reference to Exhibit 3.1.1 to ABC's Form
10-K filed March 28, 1996).
3.3 Amendment to Amended Articles of Incorporation (filed as Exhibit
4.3 to ABC's Registration on Form S-4 (Registration No. 333-
08301), filed with the Commission on July 17, 1996 and
incorporated herein by reference).
3.4 Bylaws of ABC, as amended (incorporated by reference to Exhibit
2.2 to ABC's Regulation A Offering Statement on Form 1-A (File
No. 24A-2630) filed August 14, 1987.
10.1 1985 Incentive Stock Option Plan (filed as Exhibit 5.1 to ABC's
Regulation A Offering Statement on Form 1-A (File No. 24A-2630),
filed with the Commission on August 14, 1987 and incorporated
herein by reference).
10.2 Incentive Stock Option Agreement with Kenneth J. Hunnicutt dated
October 17, 1985 (filed as Exhibit 5.2 to ABC's Regulation A
Offering Statement on Form 1-A (File No. 24A-2630), filed with
the Commission on August 14, 1987 and incorporated herein by
reference).
10.3 Deferred Compensation Agreement for Kenneth J. Hunnicutt dated
December 16, 1986 (filed as Exhibit 5.3 to ABC's Regulation A
Offering Statement on Form 1-A (File No. 24A-2630), filed with
the Commission on August 14, 1987 and incorporated herein by
reference).
10.4 Security Deed in favor of M.I.A., Co. dated December 31, 1984
(filed as Exhibit 5.4 to ABC's Regulation A Offering Statement
on Form 1-A (File No. 24A-2630), filed with the Commission on
August 14, 1987 and incorporated herein by reference).
10.5 Loan Agreement and Master Term Note dated December 30, 1986
(filed as Exhibit 5.5 to ABC's Regulation A Offering Statement
on Form 1-A (File No. 24A-2630), filed with the Commission on
August 14, 1987 and incorporated herein by reference).
10.6 Executive Salary Continuation Agreement dated February 14, 1984
(filed as Exhibit 10.6 to ABC's Annual Report on Form 10-KSB
(File Number 2-71257), filed herewith with the Commission on
March 27, 1989 and incorporated herein by reference.
10.7 1992 Incentive Stock Option Plan and Option Agreement for K. J.
Hunnicutt (filed as Exhibit 10.7 to ABC's Annual Report on Form
10-KSB (File Number 0-16181), filed with the Commission on March
30, 1993 and incorporated herein by reference).
49
<PAGE>
Exhibit No Description
---------- -----------
10.8 Executive Employment Agreement with Kenneth J. Hunnicutt dated
September 20, 1994 (filed as Exhibit 10.8 to ABC's Annual Report
on Form 10-KSB (File Number 0-016181), filed with the Commission
on March 30, 1995 and incorporated herein by reference).
10.9 Executive Consulting Agreement with Eugene M. Vereen dated
September 20, 1994 (filed as Exhibit 10.9 to ABC's Annual Report
on Form 10-KSB (File Number 0-016181), filed with the Commission
on March 30, 1995 and incorporated herein by reference).
10.10 Agreement and Plan of Merger by and between ABC and Southland
Bancorporation dated as of December 18, 1995 (filed as Exhibit
10.10 to ABC's Annual Report on Form 10-K (File No. 0-16181),
filed with the Commission on March 28, 1996 and incorporated
herein by reference), and Amendment No. 1 thereto dated as of
April 16,1996 (filed as part of Appendix A to Amendment No. 1 to
ABC's Registration on Form S-4 (Registration No. 333-2387),
filed with the Commission on May 21, 1996 and incorporated
herein by reference).
10.11 Agreement and Plan of Merger by and between ABC and Central
Bankshares, Inc., dated as of December 29, 1995 (filed as
Exhibit 10.11 to ABC's Annual Report on Form 10-K (File No. 0-
16181), filed with the Commission on March 28, 1996 and
incorporated herein by reference), and Amendment No. 1 thereto
dated as April 26, 1996 (filed as part of Appendix A to ABC's
Registration on Form S-4 (Registration No. 333-05861), filed
with the Commission on June 12, 1996 and incorporated herein by
reference).
10.12 Agreement and Plan of Merger by and between ABC and First
National Financial Corporation dated as of April 15, 1996 (filed
as Exhibit 10.12 to Amendment No. 1 to ABC's Registration on
Form S-4 (Registration No. 333-2387), filed with the Commission
on May 21, 1996 and incorporated herein by reference).
10.13 Agreement and Plan of Merger by and between ABC and M & F
Financial Corporation dated as of September 12, 1996 (filed as
Appendix A to ABC's Registration on Form S-4 (Registration No.
333-14649), filed with the Commission on October 23, 1996 and
incorporated herein by reference).
10.14 Executive Employment Agreement with Sidney J. Wooten, III dated
August 26, 1996.
21.1 Schedule of subsidiaries of ABC Bancorp.
24.1 Power of Attorney relating to this Form 10-K is set forth on the
signature pages of this Form 10-K.
27 Financial Data Schedule.
50
<PAGE>
ABC BANCORP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Consolidated financial statements:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - Years ended December 31, 1996, 1995
and 1994
Consolidated Statements of Stockholders' Equity - Years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended December 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
All schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
________________________________________________________________________________
To the Board of Directors
ABC Bancorp
Moultrie, Georgia
We have audited the accompanying consolidated balance sheets of
ABC Bancorp and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. 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
as of December 31, 1995 and total revenue of $4.6 million and $3.5 million for
the years ended December 31, 1995 and 1994, respectively. 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 as of December 31, 1995 and for the years ended December 31, 1995
and 1994, 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, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Mauldin & Jenkins, LLC
Albany, Georgia
January 31, 1997, except for Note 15 as to
which the date is February 27, 1997
F-2
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 40,894 $ 29,841
Federal funds sold 5,120 51,855
Securities available for sale, at fair value (Note 3) 86,148 65,314
Securities held to maturity, at cost (fair value
$32,238 and $19,408) (Note 3) 31,990 19,191
Loans (Note 4) 438,390 305,242
Less allowance for loan losses 6,873 5,484
-------- --------
Loans, net 431,517 299,758
-------- --------
Premises and equipment, net (Note 5) 15,640 10,524
Excess of cost over net assets of banks acquired 7,239 2,415
Other assets 16,484 12,241
-------- --------
$635,032 $491,139
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits
Noninterest-bearing demand $ 81,448 $ 74,687
Interest-bearing demand 116,777 100,512
Savings 43,332 29,614
Time, $100,000 and over 78,998 60,226
Other time 225,183 167,142
-------- --------
Total deposits 545,738 432,181
Federal funds purchased and securities sold under
agreements to repurchase 997 1,887
Other borrowings (Note 8) 24,200 5,800
Other liabilities 6,423 4,500
-------- --------
Total liabilities 577,358 444,368
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 10)
STOCKHOLDERS' EQUITY
Common stock, par value $1; 15,000,000 shares
authorized, 5,614,443 and 5,067,209 shares
issued, respectively 5,614 5,067
Capital surplus 29,471 23,826
Retained earnings 24,203 19,184
Unrealized gains (losses) on securities available
for sale, net of taxes (59) 249
-------- --------
59,229 48,326
Less cost of 217,882 shares acquired for the
treasury (1,555) (1,555)
-------- --------
Total stockholders' equity 57,674 46,771
-------- --------
$635,032 $491,139
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands)
- --------------------------------------------------------------------------------
1996 1995 1994
------- ------- --------
Interest income
Interest and fees on loans $ 40,711 $ 31,929 $25,239
Interest on taxable securities 5,192 4,093 3,543
Interest on nontaxable securities 909 725 788
Interest on deposits in other banks 5 20 75
Interest on Federal funds sold 959 1,464 903
-------- -------- -------
47,776 38,231 30,548
-------- -------- -------
Interest expense
Interest on deposits 19,746 15,613 11,434
Interest on other borrowings 1,389 612 348
-------- -------- -------
21,135 16,225 11,782
-------- -------- -------
Net interest income 26,641 22,006 18,766
Provision for loan losses (Note 4) 1,894 1,231 955
-------- -------- -------
Net interest income after provisions
for loan losses 24,747 20,775 17,811
-------- -------- -------
Other income
Service charges on deposit accounts 4,554 3,666 3,416
Other service charges, commissions and
fees 500 422 336
Gain (loss) on sale of securities (5) (3) 7
Other 1,235 589 514
-------- -------- -------
6,284 4,674 4,273
-------- -------- -------
Other expenses
Salaries and employee benefits (Note 6) 10,705 8,558 7,816
Equipment expense 1,701 1,489 1,515
Occupancy expense 1,337 1,052 939
Merger and acquisition expense 708 - -
Amortization of intangible assets 487 310 310
Data processing fees 500 486 566
Directors fees 462 424 395
FDIC premiums 367 481 801
Stationary and supplies expense 592 365 338
Other operating expenses 4,804 3,756 3,250
-------- -------- -------
21,663 16,921 15,930
-------- -------- -------
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes $ 9,368 $ 8,528 $ 6,154
Applicable income taxes (Note 9) 2,667 2,611 1,837
-------- -------- --------
Net income $ 6,701 $ 5,917 $ 4,317
======== ======== ========
Income per common share $ 1.29 $ 1.22 $ 0.98
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized
Gains (Losses)
on Securities
Common Stock Available Treasury Stock
-------------------- Capital Retained for Sale, -----------------
Shares Par Value Surplus Earnings Net of Taxes Shares Cost Total
--------- --------- ------- -------- ------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 3,414,751 $3,415 $17,134 $11,201 $ - 183,412 $(1,680) $30,070
Net income - - - 4,317 - - - 4,317
Cash dividends declared, $.29 per share - - - (884) - - - (884)
Purchase and simultaneous retirement of the
common stock of pooled subsidiary (4,167) (4) (24) - - - - (28)
Purchase of minority interest in pooled
subsidiary - - (34) (82) - - - (116)
Proceeds from sale of stock, net of stock
offering expense 747,500 747 7,577 - - - - 8,324
Net change in unrealized losses on securities
available for sale, net of taxes - - - - (601) - - (601)
--------- ------ ------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1994 4,158,084 4,158 24,653 14,552 (601) 183,412 (1,680) 41,082
Net income - - - 5,917 - - - 5,917
Cash dividends declared, $.35 per share - - - (1,176) - - - (1,176)
Cash dividends paid by pooled subsidiary - - - (109) - - - (109)
Exercise of options by shareholders of
pooled subsidiary 10,038 10 75 - - - - 85
Four-for-three common stock split 899,087 899 (899) - - 61,137 - -
Purchase of fractional shares - - (3) - - - - (3)
Stock issued under stock option purchase plan - - - - - (26,667) 125 125
Net change in unrealized gains on securities
available for sale, net of taxes - - - - 850 - - 850
--------- ------ ------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1995 5,067,209 5,067 23,826 19,184 249 217,882 (1,555) 46,771
Net income - - - 6,701 - - - 6,701
Cash dividends declared, $.40 per share - - - (1,682) - - - (1,682)
Adjustments to record acquisition of a
purchased subsidiary 402,271 402 5,543 - (196) - - 5,749
Exercise of options and capital contributions
by shareholders of pooled subsidiaries prior
to merger 144,963 145 109 - - - - 254
Purchase of fractional shares - - (7) - - - - (7)
Net change in unrealized gains (losses) on
securities available for sale, net of taxes - - - - (112) - - (112)
--------- ------ ------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1996 5,614,443 $5,614 $29,741 $24,203 $ (59) 217,882 $(1,555) $57,674
========= ====== ======= ======= ======== ======= ======= =======
See Notes to Consolidated Financial Statements.
F-6
</TABLE>
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands)
- --------------------------------------------------------------------------------
1996 1995 1994
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,701 $ 5,917 $ 4,317
-------- -------- --------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 1,515 1,356 1,293
Amortization of intangible assets 487 310 310
Net (gains) losses on securities
available for sale 5 3 (7)
Provision for loan losses 1,894 1,231 955
Provision for deferred taxes (431) (223) 26
Write-downs of other real estate
owned - - 53
Increase in interest receivable (577) (1,066) (1,061)
Increase (decrease) in interest
payable (90) 440 211
Increase (decrease) in taxes
payable (531) 98 60
Other prepaids, deferrals and
accruals, net 1,444 (700) (920)
-------- -------- --------
Total adjustments 3,716 1,449 920
-------- -------- --------
Net cash provided by operating
activities 10,417 7,366 5,237
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest-bearing
deposits in banks - 298 1,459
Purchases of securities available
for sale (35,986) (32,756) (11,196)
Purchases of securities held to
maturity (2,871) (2,653) (12,191)
Proceeds from maturities of
securities available for sale 22,052 7,741 1,250
Proceeds from sale of securities
available for sale 4,638 7,444 4,308
Proceeds from maturities of
securities held to maturity 1,894 17,146 13,195
(Increase) decrease in Federal
funds sold 46,735 (23,863) 13,625
Increase in loans, net (53,712) (34,774) (39,474)
Net cash paid for purchased
subsidiary (3,947) - -
Purchase of minority interest
by pooled subsidiary - - (575)
Purchase of premises and
equipment (3,715) (886) (2,525)
Proceeds from the sale of
premises and equipment 48 24 22
-------- -------- --------
Net cash used in investing
activities (24,864) (62,279) (32,102)
-------- ------- --------
F-7
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands)
- --------------------------------------------------------------------------------
1996 1995 1994
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits $22,061 $57,052 $28,232
Decrease in Federal funds purchased
and securities sold under
agreements to repurchase (2,690) (451) (842)
Proceeds from other borrowings 12,600 4,600 1,500
Repayment of other borrowings (5,200) (150) (5,782)
Dividends paid (1,518) (1,186) (645)
Dividends paid to minority interest
of pooled subsidiary - - (24)
Proceeds from stock offering, net - - 8,324
Proceeds from sale of stock of
pooled subsidiary 254 85 -
Proceeds from exercise of stock
options - 125 -
Purchase of fractional shares (7) (3) -
Purchase of treasury shares of
pooled subsidiary - - (28)
------- ------- -------
Net cash provided by financing
activities 25,500 60,072 30,735
------- ------- -------
Net increase in cash and due from
banks 11,053 5,159 3,870
Cash and due from banks at beginning
of year 29,841 24,682 20,812
------- ------- -------
Cash and due from banks at end of year $40,894 $29,841 $24,682
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $21,225 $15,785 $11,571
Income taxes $ 3,629 $ 2,736 $ 1,751
NONCASH TRANSACTION
Net change in unrealized gains
(losses) on securities available
for sale $ (154) $ 812 $ (579)
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
ABC BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
ABC Bancorp, (the "Company") is a multi-bank holding company whose business
is presently conducted by its subsidiary banks (the "Banks"). Through the
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.
Basis of Presentation
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 finanical 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-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities
Securities are classified based on management's intention on the date of
purchase. Securities which management has the intent and ability to hold to
maturity are classified as held to maturity and reported at amortized cost.
All other debt securities are classified as available for sale and carried at
fair value with net unrealized gains and losses included in stockholders'
equity net of tax. Marketable equity securities are carried at fair value with
net unrealized gains and losses included in stockholders' equity. Other equity
securities without a readily determinable fair value are carried at cost.
Interest and dividends on securities, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses from the sales of securities are determined using the specific
identification method.
A decline in the fair value below cost of any security that is deemed other
than temporary is charged to earnings resulting in the establishment of a new
cost basis for the security.
Loans Held for Sale
Loans held for sale include mortgage and other loans and are carried at the
lower of aggregate cost or fair value.
Loans
Loans are carried at their 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.
Loan origination fees and certain direct costs of most loans are recognized
at the time the loan is recorded. Loan origination fees and costs incurred for
other loans are deferred and recognized as income over the life of the loan.
Because net origination loan fees and costs are not material, the results of
operations are not materially different than the results which would be
obtained by accounting for loan fees and costs in accordance with generally
accepted accounting principles.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
The allowance for loan losses is maintained at a level that management
believes to be adequate to absorb potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth, composition of the loan portfolio, and other risks
inherent in the portfolio. 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.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When accrual of interest is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received.
A loan is impaired when it is probable the Company will be unable to collect
all principal and interest payments due in accordance with the terms of the
loan agreement. Individually identified impaired loans are measured based on
the present value of payments expected to be received, using the contractual
loan rate as the discount rate. Alternatively, measurement may be based on
observable market prices or, for loans that are solely dependent on the
collateral for repayment, measurement may be based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds the
measure of fair value, a valuation allowance is established as a component of
the allowance for loan losses. Changes to the valuation allowance are recorded
as a component of the provision for loan losses.
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
F-11
<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 Company's
financial statements.
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 for banks acquired prior to 1996.
Excess acquisition cost of Southland Bank acquired in 1996 is being amortized
on the straight-line method over 15 years.
Income Taxes
Income tax expense consists of current and deferred taxes. Current income
tax provisions approximate taxes to be paid or refunded for the applicable
year. Deferred tax assets and liabilities are recognized on the temporary
differences between the bases of assets and liabilities as measured by tax laws
and their bases as reported in the financial statements. Deferred tax expense
or benefit is then recognized for the change in deferred tax assets or
liabilities between periods.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences, tax operating loss carryforwards, and tax
credits will be realized. A valuation allowance is recorded for those deferred
tax items for which it is more likely than not that realization will not occur.
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.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share
Earnings per share are calculated on the basis of the weighted average
number of shares outstanding. 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.
NOTE 2. 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 $5,880,000 in cash. The excess of purchase price
over net book value of assets acquired amounted to $5,310,000. The fair value
of assets acquired was deemed to approximate their recorded value; therefore,
the excess cost has been accounted for as goodwill and is being 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 have been 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 years ended
December 31, 1996 and 1995 would have been as follows:
Year Ended December 31,
--------------------------------
1996 1995
--------- --------
(Dollars in Thousands)
--------------------------------
Net interest income $ 28,970 $ 25,941
Other income 6,851 6,256
Net income 6,891 6,352
Net income per share 1.28 1.21
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. ACQUISITIONS (Continued)
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 725,772 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. On December 31, 1996, the Company acquired all of the outstanding
common stock of M & F Financial Corporation ("M & F") in exchange for 365,026
shares of the Company's common stock and a nominal amount of cash in lieu of
fractional shares. Immediately following the merger, M & F was liquidated and
its wholly-owned subsidiary, Merchants & Farmers Bank, became a wholly-owned
subsidiary of the Company.
The acquisitions of Central, First National and M & F 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:
Year Ended December 31,
--------------------------------
1995 1994
--------- --------
(Dollars in Thousands)
--------------------------------
Net interest income:
ABC $ 16,030 $ 13,500
Central 2,182 2,005
First National 2,152 1,724
M & F 1,642 1,537
-------- --------
Combined $ 22,006 $ 18,766
======== ========
Net income:
ABC $ 4,341 $ 3,100
Central 499 457
First National 612 316
M & F 465 444
-------- --------
Combined $ 5,917 $ 4,317
======== ========
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENTS IN SECURITIES
Under special provisions adopted by the Financial Accounting Standards Board
in October 1995, the Company transferred $21,181,000 from securities held to
maturity to securities available for sale on December 31, 1995, resulting in a
net unrealized gain of $131,000 which was included in stockholders' equity at
$87,000 net of related taxes of $44,000.
The amortized cost and approximate fair values of investments in securities
at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
(Dollars in Thousands)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1996:
U. S. Government and agency securities $ 69,618 $ 232 $ (429) $ 69,421
Mortgage-backed securities 12,391 134 (52) 12,473
State and municipal securities 3,918 58 - 3,976
Other securities 300 - (22) 278
-------- ----- ------- --------
$ 86,227 $ 424 $ (503) $ 86,148
======== ===== ======= ========
December 31, 1995:
U. S. Government and agency securities $ 53,363 $ 430 $ (183) $ 53,610
Mortgage-backed securities 11,264 173 (15) 11,422
Other securities 300 - (18) 282
-------- ----- ------- --------
$ 64,927 $ 603 $ (216) $ 65,314
======== ===== ======= ========
Securities Held to Maturity
December 31, 1996:
U. S. Government and agency securities $ 11,238 $ - $ (200) $ 11,038
Mortgage-backed securities 4,326 27 (44) 4,309
State and municipal securities 16,426 493 (28) 16,891
-------- ----- ------- --------
$ 31,990 $ 520 $ (272) $ 32,238
======== ===== ======= ========
December 31, 1995:
U. S. Government and agency securities $ 59 $ 1 $ - $ 60
Mortgage-backed securities 4,704 10 (25) 4,689
State and municipal securities 14,428 337 (106) 14,659
-------- ----- ------- --------
$ 19,191 $ 348 $ (131) $ 19,408
======== ===== ======= ========
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENTS IN SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31, 1996 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 Securities Held to Maturity
----------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- -------- ---------- ---------
(Dollars in Thousands)
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 21,031 $ 21,053 $ 496 $ 499
Due from one year to five years 40,634 40,588 11,861 11,850
Due from five to ten years 7,717 7,600 13,748 13,953
Due after ten years 4,154 4,156 1,559 1,627
Mortgage-backed securities 12,391 12,473 4,326 4,309
Marketable equity securities 300 278 - -
-------- -------- -------- --------
$ 86,227 $ 86,148 $ 31,990 $ 32,238
======== ======== ======== ========
</TABLE>
Securities with a carrying value of $76,885,000 and $47,126,000 a December
31, 1996 and 1995, respectively, were pledged to secure public deposits and for
other purposes.
Gains and losses on sales of securities available for sale consist of the
following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995 1994
------ ----- ----
Dollars in Thousands
-----------------------------
<S> <C> <C> <C>
Gross gains on sales of securities $ 13 $ 24 $ 7
Gross losses on sales of securities (18) (27) -
------ ----- ----
Net realized gains (losses) on sales of
securities available for sale $ (5) $ (3) $ 7
====== ===== ====
</TABLE>
F-16
<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,
----------------------
1996 1995
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Commercial and financial $ 68,283 $ 45,892
Agricultural 34,232 21,704
Real estate - construction 13,542 3,589
Real estate - mortgage, farmland 49,807 46,255
Real estate - mortgage, commercial 88,854 59,053
Real estate - mortgage, residential 117,022 71,345
Consumer instalment loans 64,433 56,004
Other 2,217 1,400
-------- --------
438,390 305,242
Allowance for loan losses 6,873 5,484
-------- --------
$431,517 $299,758
======== ========
</TABLE>
The total recorded investment in impaired loans was $5,130,000 and
$2,259,000 at December 31, 1996 and 1995, respectively. Included in these
loans were $2,408,000 and $1,006,000 that had related allowances for loan
losses of $609,000 and $163,000 at December 31, 1996 and 1995, respectively.
The average recorded investment in impaired loans for 1996 and 1995 was
$4,024,000 and $3,089,000, respectively. Interest income on impaired loans of
$159,000 and $161,000 was recognized for cash payments received for the years
ended 1996 and 1995, respectively.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The Company has granted loans to certain directors, executive officers, and
related entities of the Company and the Banks. 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.
Changes in related party loans for the years ended December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
------- -------
(Dollars in Thousands)
<S> <C> <C>
Balance, beginning of year $12,815 $11,116
Advances 19,595 10,321
Repayments (8,212) (8,865)
Transactions due to change(s) in related parties 381 243
------- -------
Balance, end of year $24,579 $12,815
======= =======
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1996 1995 1994
------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 5,484 $4,776 $ 4,514
Allowance for loan losses of acquired subsidiary 1,211 - -
Provision charged to operations 1,894 1,231 955
Loans charged off (2,256) (966) (1,267)
Recoveries 540 443 574
------- ------ -------
Balance, end of year $ 6,873 $5,484 $ 4,776
======= ====== =======
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as follows:
December 31,
-----------------------
1996 1995
-------- --------
(Dollars in Thousands)
-----------------------
Land $ 3,673 $ 2,247
Buildings 11,210 8,028
Equipment 13,084 8,698
Construction in progress 732 182
-------- --------
28,699 19,155
Accumulated depreciation 13,059 8,631
-------- --------
$ 15,640 $ 10,524
======== ========
Depreciation expense for the years ended December 31, 1996, 1995 and
1994 was $1,404,000, $1,230,000 and $1,096,000, respectively.
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 1996, 1995 and 1994 amounted to $879,000, $588,000 and
$537,000, respectively.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 $12,000, $55,000 and $81,000 for 1996, 1995 and
1994, respectively, and is included in other operating expenses.
NOTE 8. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
-------- -------
(Dollars in Thousands)
------------------------------
<S> <C> <C>
Advances under revolving credit agreement with $ 5,000 $ -
SunTrust Bank with interest at the three month
LIBOR rate plus .9% (6.40% at December 31,
1996) due on March 30, 1997; unsecured.
Advances from Federal Home Loan Bank with 10,000 2,600
interest at adjustable rates (ranging from 5.54%
to 5.91% at December 31, 1996) due at
various dates from April 1, 1997 to March 21,
2002.
Advances from Federal Home Loan Bank with 9,200 2,000
interest at fixed rates (ranging from 5.70% to
6.48% at December 31, 1996) due at various
dates from January 21, 1997 to March 6, 2005.
Note payable by pooled subsidiary with interest at - 1,200
prime rate less 50 basis points, paid in full in 1996.
--------- -------
$ 24,200 $ 5,800
========= =======
</TABLE>
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. OTHER BORROWINGS (Continued)
The advances from the Federal Home Loan Bank are collateralized by the
pledging of first mortgage loans and other specific loans. One subsidiary bank
has also pledged mortgage-backed securities having an aggregate market value of
approximately $2,466,000 at December 31, 1996.
Other borrowings at December 31, 1996 have maturities in future years as
follows:
(Dollars in
Thousands)
-----------
1997 $ 15,750
1998 4,000
1999 3,000
2002 1,000
2005 450
--------
$ 24,200
========
NOTE 9. INCOME TAXES
The total income taxes in the consolidated statements of income are as
follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1996 1995 1994
------- ------- -------
(Dollars in Thousands)
-------------------------------------------
<S> <C> <C>
Current $ 3,098 $ 2,834 $ 1,811
Deferred (431) (223) 26
------- ------- -------
$ 2,667 $ 2,611 $ 1,837
======= ======= =======
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. INCOME TAXES (Continued)
The Company's provision for income taxes differs from the amounts
computed by applying the Federal income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1996 1995 1994
--------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent
---------- --------- ---------- --------- ---------- ---------
(Dollars in Thousands)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate $ 3,185 34% $ 2,899 34% $ 2,092 34%
Increase (decrease) resulting from:
Tax-exempt interest (323) (4) (273) (3) (307) (5)
Amortization of excess
cost over assets acquired 82 1 30 1 33 1
Changes in valuation allowance
for deferred taxes (228) (2) (72) (1) (50) (1)
Other (49) (1) 27 - 69 1
-------- -------- -------- ------- ------- --------
Provision for income taxes $ 2,667 28% $ 2,611 31% $ 1,837 30%
======== ======== ======== ======= ======= ========
</TABLE>
Net deferred income tax assets of $1,365,000 and $489,000 at December 31,
1996 and 1995, respectively, are included in other assets. The components of
deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
------------ ------------
(Dollars in Thousands)
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 1,542 $ 1,003
Deferred compensation 197 173
Unrealized loss on securities available for sale 19 -
Other real estate - 5
Other - 34
Net operating loss tax carryforward 261 285
Less valuation allowance - (228)
-------- --------
2,019 1,272
-------- --------
Deferred tax liabilities:
Deprecation and amortization 435 366
Amortization of intangible assets 219 250
Other - 30
Unrealized gain on securities available for sale - 137
-------- --------
654 783
-------- --------
Net deferred tax assets $ 1,365 $ 489
======== ========
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. 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:
December 31,
----------------------
1996 1995
---------- ---------
(Dollars in Thousands)
----------------------
Commitments to extend credit $58,693 $45,370
Credit card commitments 3,077 2,883
Standby letters of credit 1,331 1,444
------- -------
$63,101 $49,697
======= =======
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.
Credit card commitments are unsecured.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
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 for the Company, any liability
resulting from such proceedings would not have a material adverse effect on the
Company's financial statements.
NOTE 11. 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.
The Company has a concentration of funds on deposit at its primary
correspondent bank at December 31, 1996, as follows:
Noninterest-bearing accounts $ 17,458 ,000
==============
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. REGULATORY MATTERS
The Banks are subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December 31, 1996,
approximately $5,589,000 of retained earnings were available for dividend
declaration without regulatory approval.
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and Banks must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company and
Banks capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and of Tier I capital to
average assets. Management believes, as of December 31, 1996, the Company and
the Banks meet all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the regulatory
authorities categorized the Banks as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Banks must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the Banks'
category.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. REGULATORY MATTERS (Continued)
The Company and Banks' actual capital amounts and ratios are presented in
the following table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------- ---------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital
(to Risk Weighted Assets):
Consolidated $57,484 13.21% $34,812 8.00% $43,516 10.00%
American Banking Company $10,851 11.74% $ 7,394 8.00% $ 9,243 10.00%
The Bank of Quitman $ 3,778 13.15% $ 2,298 8.00% $ 2,873 10.00%
Bank of Thomas County $ 3,071 10.69% $ 2,298 8.00% $ 2,873 10.00%
The Citizens Bank of Tifton $ 6,468 13.53% $ 3,824 8.00% $ 4,780 10.00%
Cairo Banking Company $ 7,317 15.31% $ 3,823 8.00% $ 4,779 10.00%
Southland Bank $10,125 11.11% $ 7,291 8.00% $ 9,113 10.00%
Central Bank and Trust $ 5,254 13.11% $ 3,206 8.00% $ 4,008 10.00%
First National Bank of
South Georgia $ 5,625 18.74% $ 2,401 8.00% $ 3,002 10.00%
Merchants and Farmers Bank $ 4,503 15.59% $ 2,311 8.00% $ 2,889 10.00%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $52,028 11.96% $17,401 4.00% $26,101 6.00%
American Banking Company $ 9,767 10.56% $ 3,700 4.00% $ 5,549 6.00%
The Bank of Quitman $ 3,418 11.90% $ 1,149 4.00% $ 1,723 6.00%
Bank of Thomas County $ 2,757 9.60% $ 1,149 4.00% $ 1,723 6.00%
The Citizens Bank of Tifton $ 5,868 12.27% $ 1,913 4.00% $ 2,869 6.00%
Cairo Banking Company $ 6,707 14.03% $ 1,912 4.00% $ 2,868 6.00%
Southland Bank $ 8,985 9.86% $ 3,645 4.00% $ 5,468 6.00%
Central Bank and Trust $ 4,753 11.86% $ 1,603 4.00% $ 2,405 6.00%
First National Bank of
South Georgia $ 5,249 17.49% $ 1,201 4.00% $ 1,801 6.00%
Merchants and Farmers Bank $ 4,195 14.52% $ 1,156 4.00% $ 1,733 6.00%
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. REGULATORY MATTERS (Continued)
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
--------------------- --------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------ -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
(Continued)
Tier I Capital
(to Average Assets):
Consolidated $ 52,028 9.11% $ 22,844 4.00% $ 28,555 5.00%
American Banking Company $ 9,767 8.30% $ 4,707 4.00% $ 5,884 5.00%
The Bank of Quitman $ 3,418 8.72% $ 1,568 4.00% $ 1,960 5.00%
Bank of Thomas County $ 2,757 7.62% $ 1,447 4.00% $ 1,809 5.00%
The Citizens Bank of Tifton $ 5,868 7.63% $ 3,076 4.00% $ 3,845 5.00%
Cairo Banking Company $ 6,707 8.95% $ 2,998 4.00% $ 3,747 5.00%
Southland Bank $ 8,985 7.16% $ 5,020 4.00% $ 6,274 5.00%
Central Bank and Trust $ 4,753 8.54% $ 2,226 4.00% $ 2,783 5.00%
First National Bank of
South Georgia $ 5,249 9.46% $ 2,219 4.00% $ 2,774 5.00%
Merchants and Farmers Bank $ 4,195 10.13% $ 1,656 4.00% $ 2,071 5.00%
</TABLE>
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. REGULATORY MATTERS (Continued)
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995
Total Capital
(to Risk Weighted Assets):
Consolidated $ 49,557 15.73% $ 25,198 8.00% $ 31,498 10.00%
American Banking Company $ 9,670 12.21% $ 6,336 8.00% $ 7,920 10.00%
The Bank of Quitman $ 3,430 13.22% $ 2,076 8.00% $ 2,595 10.00%
Bank of Thomas County $ 3,109 14.38% $ 1,730 8.00% $ 2,162 10.00%
The Citizens Bank of Tifton $ 6,497 14.23% $ 3,653 8.00% $ 4,566 10.00%
Cairo Banking Company $ 7,471 16.61% $ 3,598 8.00% $ 4,498 10.00%
Central Bank and Trust $ 4,510 13.12% $ 2,750 8.00% $ 3,438 10.00%
First National Bank of
South Georgia $ 4,901 13.90% $ 2,821 8.00% $ 3,526 10.00%
Merchants and Farmers Bank $ 4,101 15.18% $ 2,161 8.00% $ 2,702 10.00%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 45,644 14.49% $ 12,599 4.00% $ 18,899 6.00%
American Banking Company $ 8,679 10.96% $ 3,167 4.00% $ 4,751 6.00%
The Bank of Quitman $ 3,105 11.97% $ 1,038 4.00% $ 1,556 6.00%
Bank of Thomas County $ 2,838 13.13% $ 865 4.00% $ 1,297 6.00%
The Citizens Bank of Tifton $ 5,924 12.98% $ 1,826 4.00% $ 2,738 6.00%
Cairo Banking Company $ 6,893 15.33% $ 1,799 4.00% $ 2,698 6.00%
Central Bank and Trust $ 4,079 11.86% $ 1,375 4.00% $ 2,064 6.00%
First National Bank of
South Georgia $ 4,467 12.66% $ 1,411 4.00% $ 2,117 6.00%
Merchants and Farmers Bank $ 3,801 14.07% $ 1,081 4.00% $ 1,621 6.00%
</TABLE>
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. REGULATORY MATTERS (Continued)
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
--------------------- --------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995
(Continued)
Tier I Capital
(to Average Assets):
Consolidated $ 45,644 9.87% $ 18,490 4.00% $ 23,112 5.00%
American Banking Company $ 8,679 8.51% $ 4,079 4.00% $ 5,099 5.00%
The Bank of Quitman $ 3,105 8.33% $ 1,491 4.00% $ 1,864 5.00%
Bank of Thomas County $ 2,838 9.17% $ 1,238 4.00% $ 1,547 5.00%
The Citizens Bank of Tifton $ 5,924 8.46% $ 2,801 4.00% $ 3,501 5.00%
Cairo Banking Company $ 6,893 9.41% $ 2,930 4.00% $ 3,663 5.00%
Central Bank and Trust $ 4,079 8.35% $ 1,954 4.00% $ 2,443 5.00%
First National Bank of
South Georgia $ 4,467 8.67% $ 2,061 4.00% $ 2,576 5.00%
Merchants and Farmers Bank $ 3,801 9.01% $ 1,687 4.00% $ 2,109 5.00%
</TABLE>
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments. In cases where quoted
market prices are not available, fair values are based on estimates using
discounted cash flow methods. Those methods are significantly affected by the
assumptions used, including the discount rates 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. The use of
different methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1996 and 1995.
Such amounts have not been revalued for purposes of these financial statements
since those dates and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
Cash, Due From Banks, and Federal Funds Sold:
The carrying amounts of cash, due from banks, and Federal funds sold
approximate their fair value.
Available For Sale and Held To Maturity Securities:
Fair values for securities are based on quoted market prices. The carrying
values of equity securities with no readily determinable fair value approximate
fair values.
Loans:
For variable-rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. For other
loans, the fair values are estimated using discounted cash flow methods, using
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Fair values for impaired loans are
estimated using discounted cash flow methods or underlying collateral values.
Deposits:
The carrying amounts of demand deposits, savings deposits, and variable-rate
certificates of deposit approximate their fair values. Fair values for
fixed-rate certificates of deposit are estimated using discounted cash flow
methods, using interest rates currently being offered on certificates.
Other Borrowings:
The carrying amounts of the Company's other borrowings approximate their
fair value.
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Off-Balance Sheet Instruments:
Fair values of the Company's off-balance sheet financial instruments are
based on fees charged to enter into similar agreements. However, commitments
to extend credit and standby letters of credit do not represent a significant
value to the Company until such commitments are funded. The Company has
determined that these instruments do not have a distinguishable fair value and
no fair value has been assigned.
The carrying value and estimated fair value of the Company's financial
instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ---------- --------- ---------
(Dollars in Thousands)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 46,014 $ 46,014 $ 81,696 $ 81,696
========= ========= ========= =========
Investments in securities $ 118,138 $ 118,386 $ 84,505 $ 84,722
========= ========= ========= =========
Loans $ 438,390 $ 424,241 $ 305,242 $ 295,888
Allowance for loan losses (6,873) - (5,484) -
--------- --------- --------- ---------
Loans, net $ 431,517 $ 424,241 $ 299,758 $ 295,888
========= ========= ========= =========
Financial liabilities:
Noninterest-bearing demand $ 81,448 $ 81,448 $ 74,687 $ 74,687
Interest-bearing demand 116,777 116,777 100,512 100,512
Savings 43,332 43,332 29,614 29,614
Time deposits 304,181 306,346 227,368 230,061
--------- --------- --------- ---------
Total deposits $ 545,738 $ 547,903 $ 432,181 $ 434,874
========= ========= ========= =========
Federal funds purchased and securities
sold under agreements to repurchase $ 997 $ 997 $ 1,887 $ 1,887
========= ========= ========= =========
Other borrowings $ 24,200 $ 24,200 $ 5,800 $ 5,800
========= ========= ========= =========
</TABLE>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
1996 1995
-------- --------
<S> <C> <C>
Assets
Cash $ 1,866 $ 1,978
Interest-bearing deposits in banks - 2,060
Investment in subsidiaries 56,772 40,083
Other assets 5,160 4,484
--------- --------
Total assets $ 63,798 $ 48,605
========= ========
Liabilities
Other borrowings $ 5,000 $ 1,200
Other liabilities 1,124 634
--------- --------
Total liabilities 6,124 1,834
--------- --------
Stockholders' equity 57,674 46,771
--------- --------
Total liabilities and stockholders' equity $ 63,798 $ 48,605
========= ========
</TABLE>
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income
Dividends from subsidiaries $ 5,115 $ 2,172 $ 1,445
Interest 44 145 115
Fee income 2,953 2,772 2,442
Other income 111 25 94
--------- -------- --------
Total income 8,223 5,114 4,096
--------- -------- --------
Expense
Interest 230 114 191
Amortization and depreciation 477 485 499
Merger and acquisition expense 708 - -
Other expense 4,406 2,995 2,704
-------- -------- --------
Total expense 5,821 3,594 3,394
-------- -------- --------
Income before income tax benefits
and equity in undistributed earnings
of subsidiaries 2,402 1,520 702
Income tax benefits 889 117 109
-------- -------- --------
Income before equity in undistributed
earnings of subsidiaries 3,291 1,637 811
Equity in undistributed earnings
of subsidiaries 3,410 4,280 3,506
-------- -------- --------
Net income $ 6,701 $ 5,917 $ 4,317
======== ======== ========
</TABLE>
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,701 $ 5,917 $ 4,317
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 117 175 189
Amortization of intangible assets 360 310 310
Undistributed earnings of subsidiaries (3,410) (4,280) (3,506)
(Increase) decrease in interest receivable 10 (9) (6)
Decrease in interest payable (11) - (5)
Increase (decrease) in taxes payable (169) (148) 5
Provision for deferred taxes (38) 14 5
(Increase) decrease in due from subsidiaries (333) (56) 47
Other prepaids, deferrals and accruals, net (240) (87) 59
-------- -------- --------
Total adjustments (3,714) (4,081) (2,902)
-------- -------- --------
Net cash provided by operating activities 2,987 1,836 1,415
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in banks 2,060 (560) (1,500)
Purchases of premises and equipment (482) (281) (243)
Proceeds from sale of premises 10 17 -
Contribution of capital to subsidiary bank - - (1,500)
Cash paid for purchased subsidiary (6,216) - -
Purchases of stock in pooled subsidiary - - (575)
-------- -------- --------
Net cash used in investing activities (4,628) (824) (3,818)
-------- -------- --------
</TABLE>
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands)
1996 1995 1994
--------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from other borrowings $ 5,000 $ - $ 1,500
Repayment of other borrowings (2,200) (150) (5,782)
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 subsidiaries 254 85 -
Purchase of treasury stock - - (29)
Purchase of fractional shares (7) (3) -
Dividends paid (1,518) (1,186) (645)
--------- ------- --------
Net cash provided by (used in)
financing activities 1,529 (1,129) 3,368
--------- ------- --------
Net increase (decrease) in cash (112) (117) 965
Cash at beginning of year 1,978 2,095 1,130
--------- ------- --------
Cash at end of year $ 1,866 $ 1,978 $ 2,095
========= ======= ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for interest $ 241 $ 114 $ 196
</TABLE>
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. PENDING ACQUISITION
On February 27, 1997, the Company entered into an agreement with NationsBank
Corporation to purchase the assets and assume the liabilities of the Douglas,
Georgia banking center of NationsBank. Total assets of approximately $33
million will be included in the transaction including loans totaling
approximately $11 million. Total deposits of approximately $33 million will be
assumed by the Company. The Company anticipates that approximately $4,000,000
in cash will be required to complete the acquisition. The acquisition is
subject to approval by the Company's Board of Directors and certain regulatory
authorities.
F-36
<PAGE>
Exhibit 10.14
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), is entered
into as of the 26th day of August, 1996, by and between ABC BANCORP,
a Georgia corporation ("Employer" or the "Company"), and SIDNEY J.
WOOTEN III, an individual resident of Cleveland, Georgia ("Executive").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Employer wishes to employ Executive as its Executive Vice
President and Chief Operating Officer, and Executive wishes to serve in
such position, on the terms and conditions set forth herein;
WHEREAS, Executive desires to be assured of a secure minimum
compensation from Employer for his services over a defined term;
WHEREAS, Employer desires to assure the continued services of Executive
on behalf of Employer on an objective and impartial basis and without
distraction or conflict of interest in the event of an attempt by any person
to obtain control of Employer;
WHEREAS, the Company recognizes that when faced with a proposal for a
change of control of the Company, Executive will have a significant role in
helping the Company's Board of Directors (the "Board") assess the options and
advising the Board on what is in the best interests of the Company and its
shareholders, and it is necessary for Executive to be able to provide this
advice and counsel without being influenced by the uncertainties of his own
situation;
WHEREAS, Employer desires to provide fair and reasonable benefits to
Executive on the terms and subject to the conditions set forth in this
Agreement; and
WHEREAS, Employer desires reasonable protection of its confidential
business and customer information which it has developed over the years at
substantial expense and assurance that Executive will not compete with
Employer for a reasonable period of time after termination of his employment
with Employer, except as otherwise provided herein.
NOW, THEREFORE, in consideration of these premises, the mutual covenants
and undertakings herein contained, Employer and Employee, each intending
to be legally bound, covenant and agree as follows:
<PAGE>
1. EMPLOYMENT. Upon the terms and subject to the conditions set forth in
----------
this Agreement, Employer employs Executive as its Executive Vice President and
Chief Operating Officer, and Executive accepts such employment.
2. POSITION AND DUTIES. Executive agrees to serve as the Executive Vice
-------------------
President and Chief Operating Officer of Employer and to perform such duties in
that office as may reasonably be assigned to him by the Board or the Company's
Chief Executive Officer; provided, however, that such duties shall be performed
-------- -------
in or from the offices of Employer currently located at Moultrie, Georgia, and
shall be of the same character as those generally associated with the office
held by Executive. Employer shall not, without the written consent of Executive,
relocate or transfer Executive to a location more than fifty (50) miles from the
Company's principal executive offices. During the term of this Agreement,
Executive agrees that he will serve the Company faithfully and to the best of
his ability and that he will devote his full business time, attention and skills
to the Company's business; provided, however, that the foregoing shall not be
-------- -------
deemed to restrict Executive from devoting a reasonable amount of time and
attention to the management of his personal affairs and investments, so long as
such activities do not interfere with the responsible performance or Executive's
duties hereunder. The Company shall nominate Employee as a director of the
Company during the term hereof consistent with the Company's Bylaws. In the
event of a voluntary termination pursuant to Subsection 10(C) hereof, Executive
shall, unless otherwise requested by the Company, immediately resign as a
director of the Company.
3. TERM. The term of this Agreement shall begin on the date hereof (the
----
"Effective Date") and, unless otherwise earlier terminated pursuant to Section
10 hereof, shall end on the date which is three (3) years following the
Effective Date (hereinafter referred to as the "Initial Term"). The Initial Term
shall be extended automatically for an additional year (each an "Additional
Term") on the last day of the Initial Term or each Additional Term hereof unless
either party hereto gives written notice to the other party not to so extend
within ninety (90) days prior to the expiration of the Initial Term or any
subsequent Additional Term, as the case may be, in which case no further
extension shall occur and the term of this Agreement shall end two (2) years
subsequent to the anniversary as of which the notice not to extend is given;
provided, however, that, notwithstanding any notice by Employer not to extend,
- -------- -------
the term of this Agreement shall not expire prior to the expiration of
twenty-four (24) months after the occurrence of a Change of Control (as
hereinafter defined). Notwithstanding the foregoing, this Agreement shall
automatically terminate (and the Initial Term or any Additional Term shall
thereupon end) without notice when Executive attains 65 years of age.
2
<PAGE>
4. COMPENSATION.
------------
(A) Executive shall receive an annual salary of ONE HUNDRED SEVENTY
FIVE THOUSAND DOLLARS ($175,000) ("Base Compensation") payable at regular
intervals in accordance with Employer's normal payroll practices now or
hereafter in effect. Employer may consider and declare from time to time
increases in the salary it pays Executive and thereby increase the Base
Compensation. Prior to (but not after) a Change of Control, Employer may
also declare decreases in the salary it pays Executive if the operating
results of Employer are significantly less favorable than those for its fiscal
year ended December 31, 1996, and Employer makes similar decreases in the salary
it pays to other executive officers of Employer; provided, however, that
Employer shall not be permitted to decrease Executive's annual salary below
$175,000 during the Initial Term hereof. After a Change of Control, Employer
shall consider and declare salary increases based upon the following standards:
a. Inflation;
b. Adjustments to the salaries of other senior management
personnel; and
c. Past performance of Executive and the contribution which
Executive makes to the business and profits of Employer.
Any and all increases or decreases in Executive's salary pursuant to this
Section 4(A) shall cause the level of Base Compensation to be increased
or decreased by the amount of each such increase or decrease for purposes
of this Agreement. The increased or decreased level of Base Compensation as
provided in this Section 4(A) shall become the level of Base Compensation for
the remainder of the Initial Term or any Additional Term until there is a
further increase of decrease in Base Compensation as provided herein.
(B) In addition to his Base Compensation, Executive shall be awarded,
on a pro-rata basis for Executive's employment during calendar year 1996
and for each calendar year thereafter during the Initial Term or any Additional
Term hereunder, an annual bonus (an "Annual Bonus") either pursuant to a bonus
or incentive plan of Employer or otherwise on terms no less favorable than
those awarded to other executive officers of Employer.
5. OTHER BENEFITS.
--------------
(A) So long as Executive is employed by Employer pursuant to this
Agreement, he shall be included as a participant in all present and future
employee benefit, retirement and compensation plans generally available
to employees of Employer, consistent with
3
<PAGE>
his Base Compensation and his position as Executive Vice President and Chief
Operating Officer, including, without limitation, Employer's Simplified Employee
Pension Plan, and Executive and his dependents shall be included in Employer's
hospitalization, major medical, disability and group life insurance plans.
Employer agrees to continue each of the above benefits in effect on terms no
less favorable than those for the other executive officers in effect as of the
date hereof (as permitted by law) during the Initial Term or any Additional Term
hereof (i) unless prior to a Change of Control, the operating results of
Employer are significantly less favorable than those for its fiscal year ended
December 31, 1996, or (ii) unless (either before or after a Change of Control)
(a) changes in the accounting or tax treatment of such plans would materially
adversely affect Employer's operating results or financial condition, and (b)
the Board concludes that modifications to such plans need to be made to avoid
such adverse effects. If, during the term of this Agreement, by virtue of the
terms and conditions of Employer's employee benefit or retirement plans which
may then be in effect, including, without limitation, Employer's Simplified
Employee Pension Plan, Executive cannot participate in such plans on a fully
funded and vested basis, Employer shall pay to Executive an amount, in cash, to
be calculated on a pre-tax basis, that is equal to the amount, if any, that
Executive would be entitled to receive under such plans had Executive been
entitled to participate in such plans, calculated using identical formulas and
time frames.
(B) If, during the Initial Term or any Additional Term, Executive is denied
coverage with respect to a "pre-existing condition" under Employer's
hospitalization, major medical or disability plans (the "Plans") solely by
reason of such condition, Employer shall pay such costs and expenses incurred by
Executive with respect to the diagnosis and treatment of such condition as
Executive would have been paid had such condition been covered under such Plans;
provided, however, that any such obligation of Employer to pay such costs and
- -------- -------
expenses shall terminate as soon as such "pre-existing conditions" are so
covered. Employer shall not be obligated to pay for any of Executive's costs and
expenses hereunder, if Executive is denied coverage under Employer's
hospitalization, major medical or disability plan for any reason other than by
virtue of a pre-existing condition, and any payments made by Employer to
Executive hereunder shall be calculated and paid in accordance with the terms
and conditions of such plans as the same are in effect as of the Effective Date.
For purposes of this Agreement, the term "pre-existing condition" shall mean
each of the physical conditions of Executive listed on Exhibit A attached hereto
and incorporated herein by this reference. Notwithstanding anything to the
contrary herein, if Employee elects to continue coverage for himself and his
dependents pursuant to the Consolidated Omnibus Budget Reconciliation Act of
1985 (Public Law 99-272), then Employer shall pay the cost of such continuation
coverage if and to the extent it exceeds the cost that Employee
4
<PAGE>
would have paid for coverage for himself and his dependents under the
Plans had Employee and his dependents been covered thereunder.
6. EXPENSES. So long as Executive is employed by Employer pursuant
--------
to this Agreement, Executive shall receive reimbursement from Employer
for all reasonable business expenses incurred in the course of his
employment by Employer, upon proper submission to Employer of written
vouchers and statements for reimbursement.
7. VACATION. Executive shall be entitled to one (1) week paid
--------
vacation during the remainder of calendar year 1996 and shall thereafter,
during the Initial Term or any Additional Term hereof, be entitled to two
(2) weeks paid vacation during each calendar year of Executive's employment.
8. USE OF AN AUTOMOBILE. Employer shall provide to Executive a full-size
--------------------
automobile during the Initial Term and any Additional Term hereof and shall
reimburse Executive for all mileage driven by Executive in connection with
his duties hereunder in accordance with the Employer's mileage reimbursement
policy as in effect from time to time.
9. MISCELLANEOUS EXPENSES. Employer (i) shall reimburse Executive
----------------------
for all reasonable packing and moving costs incurred by Executive in connection
with Executive's relocation to Moultrie, Georgia pursuant hereto, provided
Executive receives three (3) competitive bids for such packing and moving costs
and accepts the lowest of such bids, and (ii) shall also pay to Executive the
sum of $10,000 upon Executive's purchase of a residence in Moultrie, Georgia,
to cover certain costs incurred by Executive in connection with such relocation.
In addition, if Executive is unable to locate a buyer who is ready, willing and
able to purchase Executive's residence located in Cleveland, Georgia by the date
which is six (6) months after the Effective Date hereof, Employer shall pay to
Executive a "carrying fee" for each month thereafter that Executive is unable
to locate such a buyer; PROVIDED, HOWEVER, that Employer shall not be obligated
-------- -------
to pay Executive the carrying fee after the date which is twenty-four (24)
months after the commencement of the carrying fee payments by Employer to
Executive hereunder. For purposes of this Agreement, the term "carrying fee"
shall mean an amount, in cash, equal to the sum reached by multiplying
eighty percent (80%) of the appraised value of Executive's residence in
Cleveland, Georgia by an annualized rate of 7.50% calculated on a monthly
basis. In connection with Executive's purchase of a residence in Moultrie,
Employer agrees to pay to Executive all closing costs and points associated
with obtaining a fifteen (15) year, fixed rate mortgage with respect thereto
at an annual percentage rate of 7.50% in an amount equal to not more than
80% of the purchase price thereof (but in no event in excess of $150,000).
Employer shall use its best efforts to provide to Executive a country club
membership for business and personal use and shall pay for all initiation
fees and monthly dues
5
<PAGE>
related thereto; provided, however, that such membership shall be and remain the
-------- -------
sole property of Employer.
10. TERMINATION. Subject to the respective continuing obligations of the
-----------
parties, including, but not limited to, those set forth in Subsections 12(A),
12(B), 12(c) and 12(D) hereof, Executive's employment by Employer hereunder may
be terminated prior to the expiration of the Initial Term or any Additional Term
hereof as follows:
(A) Employer, by action of the Board and upon written notice to Executive,
may terminate Executive's employment with Employer immediately for
cause. For purposes of this Subsection 10(A), "cause" for termination
of Executive's employment shall exist (a) if Executive is convicted of
(from which no appeal may be taken), or pleads guilty to, any act of
fraud, misappropriation or embezzlement, or any felony, (b) if, in the
determination of the Board, Executive has engaged in gross or willful
misconduct materially damaging to the business of Employer (it being
understood, however, that neither conduct pursuant to Executive's
exercise of his good faith business judgment nor unintentional physical
damage to any property of Employer by Executive shall be a ground for
such a determination by the Board), or (c) if Executive has failed,
without reasonable cause, to follow reasonable written instructions of
the Board consistent with Executive's position as Executive Vice
President and Chief Operating officer of Employer and, after written
notice from Employer of such failure, Executive at any time thereafter
again so fails.
(B) Executive, by written notice to Employer, may terminate his employment
with Employer immediately for good reason. For purposes of this
Subsection 10(B), "good reason" shall mean a good faith determination
by Executive, in Executive's sole and absolute judgment, that any one
or more of the following events has occurred, without Executive's
express written consent, after a Change of Control:
(1) a change in Executive's reporting responsibilities, titles or
offices as in effect immediately prior to the Change of Control, or any
removal of the Executive from, or any failure to re-elect the Executive
to, any of Executive's positions that Executive held immediately prior
to the Change of Control, which has the effect of diminishing
Executive's responsibility or authority;
(2) a reduction by Employer in Executive's Base Compensation as in
effect immediately prior to the Change
6
<PAGE>
of Control or as the same may be increased from time to time or a
change in the eligibility requirements or performance criteria under
any bonus, incentive or compensation plan, program or arrangement
under which Executive is covered immediately prior to the Change of
Control which adversely affects Executive;
(3) Employer requires Executive to be based anywhere other than
within fifty (50) miles of Executive's job location at the time of
the Change of Control, provided that if Executive's job location at
such time is not within fifty (50) miles of Employer's principal
executive offices, then Employer may thereafter require Executive to
be based within such fifty (50) mile radius without such event
constituting good reason hereunder;
(4) without replacement by a plan providing benefits to
Executive equal to or greater than those discontinued, the failure
by Employer to continue in effect, within its maximum stated term,
any pension, bonus, incentive, stock ownership, purchase, option,
life insurance, health, accident disability, or any other employee
benefit plan, program or arrangement in which Executive is
participating at the time of the Change of Control, or the taking of
any action by Employer that would adversely affect Executive's
participation or materially reduce Executive's benefits under any of
such plans;
(5) the taking of any action by Employer that would materially
adversely affect the physical conditions existing at the time of the
Change of Control in or under which Executive performs his
employment duties, provided that Employer may take action with
respect to such conditions after a Change of Control so long as such
conditions are at least commensurate with the conditions in or under
which an officer of Executive's status would customarily perform his
employment duties; or
(6) a material change in the fundamental business philosophy,
direction, and precepts of Employer and its subsidiaries, considered
as a whole, as the same existed prior to the Change of Control.
Any event described in this Subsection 10(B)(1) through (6) which occurs prior
to a Change of Control but which Executive reasonably demonstrates (A) was at
the request of a third party who has indicated an intention, or taken steps
reasonably calculated, to effect a Change of Control or (B) otherwise arose in
connection with, or in anticipation of, a Change of Control which actually
occurs, shall constitute good
<PAGE>
reason for purposes hereof, notwithstanding that it occurred prior to a
Change of Control.
(C) Executive, upon ninety (90) days written notice to Employer, may
terminate his employment with Employer without good reason.
(D) Executive's employment with Employer shall terminate in the event of
Executive's death or disability. For purposes of this Agreement,
"disability" shall be defined as Executive's inability by reason of
illness or other physical or mental incapacity to perform the duties
required by his employment for any consecutive one hundred eighty (180)
day period.
(E) A "Change of Control" of Employer shall mean any of the following
events:
(i) Unless approved by the affirmative vote of at least two-thirds
(2/3) of those members of the Board who are in office immediately prior
to the event(s) and who are not employees of Employer:
a. the merger or consolidation of Employer with, or the sale
of all or substantially all of the assets of, Employer to any
person or entity or group of associated persons or entities; or
b. the direct or indirect beneficial ownership, in the
aggregate, of securities of Employer representing twenty percent
(20%) or more of the total combined voting power of Employer's then
issued and outstanding securities by any person or entity, or group
of associated persons or entities acting in concert, not affiliated
(within the meaning of the Securities Act of 1993, as amended) with
Employer as of the date hereof; provided, however, that the Board
-------- -------
may, at any time and in its sole discretion, increase the ownership
percentage threshold of this item b. to an amount not exceeding
forty percent (40%); or
c. the shareholders of Employer approve any plan or proposal
for the liquidation or dissolution of Employer.
(ii) A change in the composition of the Board at any time during
any consecutive twenty-four (24) month period such that the "Continuity
Directors" cease for any reason to constitute at least a seventy
percent (70%) majority of the Board. For purposes of this Agreement,
8
<PAGE>
"Continuity Directors" means those members of the Board who either:
a. were directors at the beginning of such consecutive
twenty-four (24) month period; or
b. were elected by, or on the nomination or recommendation
of, at least a two-thirds (2/3) majority of the Board
11. Compensation Upon Termination. In the event of termination of
-----------------------------
Executive's employment with Employer pursuant to Section 10 hereof, compensation
shall continue to be paid by Employer to Executive as follows:
(A) In the event of termination pursuant to Subsection 10 (A), compensation
provided for herein (including Base Compensation and an Annual Bonus)
shall continue to be paid, and Executive shall continue to participate
in the employee benefit, retirement, compensation plans and other
perquisites as provided in Sections 5 and 6 hereof, through and
including the Date of Termination (as hereinafter defined) specified in
the Notice of Termination (as hereinafter defined). Any benefits
payable under insurance, health, retirement and bonus plans as a result
of Executive's participation in such plans through such date shall be
paid when due under such plans.
(B) In the event of termination pursuant to Subsection 10 (C), compensation
provided for herein (including Base Compensation and an Annual Bonus)
shall continue to be paid, and Executive shall continue to participate
in the employee benefit, retirement, compensation plans and other
perquisites as provided in Sections 5 and 6 hereof, for the remainder
of the Initial Term or any Additional Term hereof, as the case may be,
during which the Notice of Termination was given. In addition, any
benefits payable under insurance, health, retirement and bonus plans as
a result of Executive's participation in such plans shall be paid when
due under such plans for the remainder of such Initial Term or
Additional Term.
(C) In the event of termination pursuant to Subsection 10 (B), compensation
provided for herein (including Base Compensation and an Annual Bonus)
shall continue to be paid, and Executive shall continue to participate
in the employee benefit, retirement, compensation plans and other
perquisites as provided in Section 5 hereof, through the Date of
Termination specified in the Notice of Termination, and any benefits
payable under insurance, health, retirement and bonus plans as a result
of
<PAGE>
Executive's participation in such plans through such date shall be paid
when due under those plans. In addition, if the event of termination
pursuant to Subsection 10(B) occurs within twenty-four (24) months
after the date of a Change of Control, then (a) Executive shall be
entitled to continue to receive from Employer for two (2) additional
12-month periods his Base Compensation at the rates in effect at the
time of termination plus an Annual Bonus in an amount equal to at least
forty percent (40%) of such Base Compensation as of the date of the
event of termination, payable in accordance with Employer's standard
payment practices then existing; (b) for two (2) additional 12-month
periods, Employer shall maintain in full force and effect for the
continued benefit of Executive each employee welfare benefit plan (as
such term is defined in the Employment Retirement Income Security Act
of 1974, as amended) in which Executive was entitled to participate
immediately prior to the date of his termination, unless an essentially
equivalent and no less favorable benefit is provided by a subsequent
employer of Executive, provided that if the terms of any employee
welfare benefit plan of Employer or applicable laws do not permit
continued participation by Executive, Employer will arrange to provide
to Executive a benefit substantially similar to, and no less favorable
than, the benefit he was entitled to receive under such plan at the end
of the period of coverage; (c) Employer shall also contribute the
maximum contributions allowable under Employer's Simplified Employee
Pension Plan, or any successor plan thereto, for the benefit of
Executive; and (d) Executive shall also be entitled to receive payment
from Employer for reasonable relocation expenses if Executive relocates
within five hundred (500) miles of Moultrie, Georgia if such relocation
occurs within one hundred eighty (180) days after the Date of
Termination specified in the Notice of Termination.
(D) In the event of termination pursuant to Subsection 10(D), compensation
provided for herein (including Base Compensation and an Annual Bonus)
shall continue to be paid, and Executive shall continue to participate
in the employee benefit, retirement, and compensation plans and other
perquisites as provided in Sections 5 and 6 hereof, (i) in the event of
Executive's death, through the date of death, or (ii) in the event of
Executive's disability, through the Date of Termination specified in
the Notice of Termination. Any benefits payable under insurance,
health, retirement and bonus plans as a result of Executive's
participation in such plans through such date shall be paid when due
under those plans.
<PAGE>
(E) Employer will permit Executive or his personal representative(s) or
heirs, during a period of ninety (90) days following the Date of
Termination (as set forth in the Notice of Termination) of Executive's
employment by Employer for the reasons set forth in Subsection 10 (B),
to purchase all of the stock of Employer that would be issuable under
the outstanding stock options, if any, previously granted by Employer
to Executive under any Employer stock option plan then in effect,
whether or not such options are then exercisable, at a cash purchase
price equal to the purchase price as set forth in such outstanding
stock options.
(12). RESTRICTIVE COVENANTS.
---------------------
(A) Executive acknowledges that (i) the Company has separately
bargained and paid additional consideration for the restrictive covenants
herein; and (ii) the Company will provide certain benefits to Executive
hereunder in reliance on such covenants in view of the unique and essential
nature of the services Executive will perform on behalf of the Company and the
irreparable injury that would befall the Company should Executive breach such
covenants.
(B) Executive further acknowledges that his services are of a
special, unique and extraordinary character and that his position with the
Company will place him in a position of confidence and trust with employees of
the Company and its subsidiaries and with the Company's other constituencies and
will allow him access to confidential information concerning the Company and its
subsidiaries.
(C) Executive further acknowledges that the type and periods of
restrictions imposed by the covenants in this Section 12 are fair and reasonable
and that such restrictions will not prevent Executive from earning a livelihood.
(D) Having acknowledged the foregoing, Executive covenants and
agrees with the Company as follows:
(1) While Executive is employed by Employer and for a period of two (2)
years after termination of such employment for reasons other than
those set forth in Subsection 10 (B) of this Agreement, Executive
shall not divulge or furnish any trade secrets (as defined in (S)16-8-
13 of the Official Code of Georgia Annotated) of Employer or any
confidential information acquired by him while employed by Employer
concerning the policies, plans, procedures or customers of Employer or
any of its subsidiaries to any person, firm or corporation, other than
Employer or upon its written request, or use any such trade secret or
confidential information (which shall at all times remain
11
<PAGE>
the property of Employer) directly or indirectly for Executive's
own benefit or for the benefit of any person, firm or corporation
other than Employer.
(2) For a period of two (2) years after termination of Executive's
employment by Employer for reasons other than those set forth in
Subsection 10(B) of this Agreement, Executive shall not directly or
indirectly provide banking or bank-related services to, or solicit
the banking or bank-related business of, any customer of Employer
or any of its subsidiaries at the time of such provision of
services or solicitation which Executive served either alone or
with others while employed by Employer in any city, town, borough,
township, village or other place in which Executive performed
services for Employer while employed by it, or assist any actual or
potential competitor of Employer or any of its subsidiaries to
provide banking or bank-related services to or solicit any such
customer's banking or bank-related business in any such place.
(3) While Executive is employed by Employer and for a period of two (2)
years after termination of Executive's employment by Employer for
reasons other than those set forth in Subsection(B) of this
Agreement, Executive shall not, directly or indirectly, as
principal, agent, or trustee, or through the agency of any
corporation, partnership, trade association, agent or agency,
engage in any banking or bank-related business or venture which
competes with the business of Employer or any of its subsidiaries
as conducted during Executive's employment by Employer within a
radius of fifty (50) miles of Employer's main office or the main
office or any of its subsidiaries; provided, however, that this
Subsection 12(C) shall not prohibit or otherwise restrict Executive
from accepting employment with a bank holding company that has a
banking subsidiary within any such 50-mile radius so long as the
principal offices of such holding company are outside any such 50-
mile radius and Executive's place of employment is also outside any
such 50-mile radius.
(4) If Executive's employment by Employer is terminated for reasons
other than those set forth in Subsection 10(B) of this Agreement,
Executive will turn over immediately thereafter to Employer all
business correspondence, letters, papers, reports, customers'
lists, financial statements, credit reports or other confidential
information or documents of Employer or its affiliates in the
possession or control of Executive, all of which writings are and
will continue to be the sole and
12
<PAGE>
exclusive property of Employer or its affiliates, as the case may
be.
If Executive's employment by Employer is terminated for reasons set forth in
Subsection 10(B) of this Agreement, Executive shall have no obligations to
Employer with respect to trade secrets, confidential information or non-
competition under this Section 12. Executive acknowledges that irreparable loss
and injury would result to Employer upon the breach of any of the covenants
contained in this Section 12 and that damages arising out of such breach would
be difficult to ascertain. Executive hereby agrees that, in addition to all
other remedies provided at law or at equity, Employer may petition and obtain
from a court of law or equity, without the necessity of proving actual damages
and without posting bond or other security, both temporary and permanent
injunctive relief to prevent a breach by Executive of any covenant contained in
this Section 12, and shall be entitled to an equitable accounting of all
earnings, profits and other benefits arising out of any such breach. In the
event that the provisions of this Section 12 should ever be deemed to exceed the
time, geographic or any other limitations permitted by applicable law, then such
provisions shall be deemed reformed to the maximum extent permitted thereby.
13. NOTICE OF TERMINATION AND DATE OF TERMINATION. Any termination of
---------------------------------------------
Executive's employment with Employer as contemplated by Section 10 hereof,
except in the circumstances of Executive's death, shall be communicated by
written "Notice of Termination" by the terminating party to the other party
hereto. Any "Notice of Termination" pursuant to Subsections 10(A), 10(B) or
10(D) shall indicate the specific provisions of this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination. For purposes of this Agreement, "Date of
Termination" shall mean: (i) if Executive's employment is terminated because of
disability, thirty (30) days after Notice of Termination is given (unless
Executive shall have returned to the performance of Executive's duties on a
full-time basis during such thirty (30) day period; or (ii) if Executive's
employment is terminated for cause, retirement, good reason or pursuant to
Subsection 10(C) hereof, the date specified in the Notice of Termination;
provided, however, that if within thirty (30) days after any such Notice of
- -------- -------
Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally resolved, either
by mutual agreement of the parties or by a final judgment, order or decree of a
court of competent jurisdiction (the time for the appeal therefrom having
expired and no appeal having been perfected).
13
<PAGE>
14. EXCESS PARACHUTE PAYMENTS AND ONE MILLION DOLLAR DEDUCTION LIMIT.
----------------------------------------------------------------
(A) Notwithstanding anything contained herein to the contrary, if
any portion of the payments and benefits provided hereunder and benefits
provided to, or for the benefit of, Executive under any other plan or agreement
of Employer (such payments or benefits are collectively referred to as the
"Payments") would be subject to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
would be nondeductible by Employer pursuant to Section 280G of the Code, the
Payments shall be reduced (but not below zero) if and to the extent necessary so
that no portion of any Payment to be made or benefit to be provided to Executive
shall be subject to the Excise Tax or shall be nondeductible by Employer
pursuant to Section 280G of the Code (such reduced amount is hereinafter
referred to as the "Limited Payment Amount"). Unless Executive shall have given
prior written notice specifying a different order to Employer to effectuate the
Limited Payment Amount, Employer shall reduce or eliminate the Payments, by
first reducing or eliminating those payments or benefits which are not payable
in cash and then by reducing or eliminating cash payments, in each case in
reverse order beginning with payments or benefits which are to be paid the
farthest in time from the Determination (as hereinafter defined). Any notice
given by Executive pursuant to the preceding sentence shall take precedence over
the provisions of any other plan, arrangement or agreement governing
Executive's rights and entitlements to any benefits or compensation.
(B) An initial determination as to whether the Payments shall be
reduced to the Limited Payment Amount pursuant to the Code and the amount of
such Limited Payment Amount shall be made by an accounting firm at Employer's
expense selected by Employer which is designated as one of the six largest
accounting firms in the United States (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations and documentation to Employer and Executive
within thirty (30) days of the Termination Date, if applicable, and if the
Accounting Firm determines that no Excise Tax is payable by Executive with
respect to a Payment or Payments, it shall furnish Executive with an opinion
reasonably acceptable to Executive that no Excise Tax will be imposed with
respect to any such Payment or Payments. Within ten (10) days of the delivery
of the Determination to Executive, Executive shall have the right to dispute the
Determination to Executive, (the "Dispute"). If there is no Dispute, the
Determination shall be binding, final and conclusive upon Employer and Executive
subject to the application of Subsection 14(C) below.
(C) As a result of the uncertainty in the application of Sections
4999 and 280G of the Code, it is possible that the
14
<PAGE>
Payments to be made to, or provided for the benefit of, Executive either have
been made or will not be made by Employer which, in either case, will be
inconsistent with the limitations provided in Section 14(A) (hereinafter
referred to as an "Excess Payment" or "Underpayment, respectively). If it is
established pursuant to a final determination of a court or an Internal Revenue
Service (the "IRS") proceeding which has been finally and conclusively resolved
that an Excess Payment has been made, such Excess Payment shall be deemed for
all purposed to be a loan to Executive made on the date Executive received the
Excess Payment, and Executive shall repay the Excess Payment to Employer on
demand (but not less than ten (10) days after written notice is received by
Executive), together with interest on the Excess Payment at the "Applicable
Federal Rate" (as defined in Section 1274(d) of the Code) from the date of
Executive's receipt of such Excess Payment until the date of such repayment. In
the event that it is determined by (i) the Accounting Firm, Employer (which
shall include the position taken by Employer, or together with its consolidated
group, on its federal income tax return) or the IRS, (ii) pursuant to a
determination by a court, or (iii) upon the resolution of the Dispute to
Executive's satisfaction, that an Underpayment has occurred, Employer shall pay
an amount equal to the Underpayment to Executive within ten (10) days of such
determination or resolution, together with interest on such amount at the
Applicable Federal Rate from the date such amount would have been paid to
Executive until the date of payment.
(D) Notwithstanding anything contained herein to the contrary, if
any portion of the Payments would be nondeductible by Employer pursuant to
Section 162(m) of the Code, the Payments to be made to Executive in any taxable
year of Employer shall be reduced (but not below zero) if and to the extent
necessary so that no portion of any Payment to be made or benefit to be provided
to Executive in such taxable year of Employer shall be nondeductible by Employer
pursuant to Section 162(m) of the Code. The amount by which any Payment is
reduced pursuant to the immediately preceding sentence, together with interest
thereon at the Applicable Federal Rate, shall be paid by Employer to Executive
on or before the fifth business day of the immediately succeeding taxable year
of Employer, subject to the application of the limitations of the immediately
preceding sentence and this Section 14. Unless Executive shall have given prior
written notice specifying a different order to Employer to effectuate this
Section 14, Employer shall reduce or eliminate the Payments in any one taxable
year of Employer by first reducing or eliminating those payments or benefits
which are not payable in cash and then by reducing or eliminating cash payments,
in each case in reverse order beginning with payments or benefits which are to
be paid the farthest in time from the Section 162(m) Determination (as
hereinafter defined). Any notice given by Executive pursuant to the immediately
preceding sentence shall take precedence over the provisions of any other
15
<PAGE>
plan, arrangement or agreement governing Executive's rights and entitlements to
any benefits or compensation.
(E) The determination as to whether the Payments shall be reduced
pursuant to Section 14(D) hereof and the amount of the Payments to be made in
each taxable year after the application of Section 14(D) hereof shall be made by
the Accounting Firm at Employer's expense. The Accounting Firm shall provide
its determination (the "Section 162(m) Determination"), together with detailed
supporting calculations and documentation to Employer and Executive within
thirty (30) days of the termination date specified in the Notice of Termination.
The Section 162(m) Determination shall be binding, final and conclusive upon
Employer and Executive.
15. PAYMENTS AFTER DEATH. Should Executive die after termination of
--------------------
his employment with Employer while any amounts are payable to him hereunder,
this Agreement shall inure to the benefit of and be enforceable by Executive's
executors, administrators, heirs, distributees, devisees and legatees, and all
amounts payable hereunder shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if there is no
such designee, to his estate.
16. NOTICES. For purposes of this Agreement, notices and all other
-------
communications provided for herein shall be in writing and shall be deemed to
have been given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive: Sidney J. Wooten III
130 Lower Meigs Road
Moultrie, Georgia 31768
If to Employer: ABC Bancorp
310 First Street, S.E.
Moultrie, Georgia 31768
or to such address as either party hereto may have furnished to the other party
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
17. GOVERNING LAW. The validity, interpretation, and performance of
-------------
this Agreement shall be governed by the laws of the State of Georgia without
giving effect to the conflicts of laws principles thereof.
18. SUCCESSORS. Employer shall require any successor (whether direct
----------
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of Employer, by agreement in form
and substance reasonably satisfactory to Executive, to expressly assume and
agree to perform
16
<PAGE>
this Agreement in the same manner and same extent that Employer would be
required to perform it if no such succession had taken place. Failure of
Employer to obtain such agreement prior to the effectiveness of any such
succession shall be a material intentional breach of this Agreement and shall
entitle Executive to terminate his employment with Employer for good reason
pursuant to Subsection 10(B) hereof. As used in this Agreement, "Employer"
shall mean Employer as hereinbefore defined and any successor to its business or
assets as aforesaid.
19. MODIFICATION. No provision of this Agreement may be modified,
------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and Employer. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of dissimilar provisions or conditions at the same or
any prior subsequent time. No agreements or representation, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in the Agreement.
20. SEVERABILITY. The invalidity or unenforceability of any provisions
------------
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement which shall remain in full force and effect.
21. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement.
22. ASSIGNMENT. This Agreement is personal in nature and neither party
----------
hereto shall, without consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder except as provided in Sections 16 and 19
above. Without limiting the foregoing, Executive's right to receive
compensation hereunder shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise, other than a transfer by
his will or by the laws of descent or distribution as set forth in Section 16
hereof, and in the event of any attempted assignment or transfer contrary to
this Section 23, Employer shall have no liability to pay any amounts so
attempted to be assigned or transferred.
23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
17
<PAGE>
IN WITNESS WHEREOF, Executive has executed, sealed and delivered this
Agreement, and Employer has caused this Agreement to be executed, sealed and
delivered, all as of the day and year first above set forth.
ABC BANCORP
[CORPORATE SEAL]
By: /s/ Kenneth J.Hunnicutt
-------------------------------
Attest:
Its: President and CEO
--------------------------
/s/ Cindi Lewis, VP/OPS
- ------------------------------------
Assistant Secretary
/s/ Sidney J. Wooten III (SEAL)
--------------------------------
SIDNEY J. WOOTEN III
Executive Vice President and
Chief Operating Officer and Director
18
<PAGE>
EXHIBIT A
PRE-EXISTING CONDITIONS
Menieres Disease - Sidney J. Wooten
Allergies - Matthew T. Wooten (dependent)
19
<PAGE>
Exhibit 21.1
REGISTRANT'S SUBSIDIARIES
Following is a list of the Registrant's subsidiaries and the state of
incorporation or other jurisdiction.
Name of Subsidiary State of Incorporation or Other Jurisdiction
- ------------------------- ---------------------------------------------
American Banking Company State of Georgia
The Bank of Quitman State of Georgia
Bank of Thomas County State of Georgia
The Citizens Bank of Tifton State of Georgia
Cairo Banking Company State of Georgia
Southland Bank State of Alabama
Central Bank & Trust State of Georgia
First National Bank of South Georgia The Comptroller of the Currency
Merchants & Farmers Bank State of Georgia
Each subsidiary conducts business under the name listed above.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 40,894
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,120
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 86,148
<INVESTMENTS-CARRYING> 118,138
<INVESTMENTS-MARKET> 118,386
<LOANS> 438,390
<ALLOWANCE> 6,873
<TOTAL-ASSETS> 635,032
<DEPOSITS> 545,738
<SHORT-TERM> 25,197
<LIABILITIES-OTHER> 6,423
<LONG-TERM> 0
0
0
<COMMON> 5,614
<OTHER-SE> 52,060
<TOTAL-LIABILITIES-AND-EQUITY> 635,032
<INTEREST-LOAN> 40,711
<INTEREST-INVEST> 6,101
<INTEREST-OTHER> 964
<INTEREST-TOTAL> 47,776
<INTEREST-DEPOSIT> 19,746
<INTEREST-EXPENSE> 21,135
<INTEREST-INCOME-NET> 26,641
<LOAN-LOSSES> 1,894
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 21,663
<INCOME-PRETAX> 9,368
<INCOME-PRE-EXTRAORDINARY> 9,368
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,701
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.29
<YIELD-ACTUAL> 5.46
<LOANS-NON> 5,131
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,131
<ALLOWANCE-OPEN> 5,484
<CHARGE-OFFS> 2,256
<RECOVERIES> 540
<ALLOWANCE-CLOSE> 6,873<F1>
<ALLOWANCE-DOMESTIC> 6,873<F1>
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,873<F1>
<FN>
<F1>Includes $1,211 reserve increase due to acquisition.
</FN>
</TABLE>
