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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, 1998
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 _________
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Check if 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, 1999, registrant had outstanding 7,247,965 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 $80,043,000.
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.
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PART I
ITEM 1. BUSINESS OF THE COMPANY AND THE SUBSIDIARY BANKS
ABC Bancorp ("ABC") 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.
ABC provides, through its commercial bank subsidiaries described below
(sometimes hereinafter referred to as the "Banks"), banking services to
individuals and businesses in southwestern and southcentral Georgia and
southeastern Alabama. ABC'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, ABC is subject to the applicable provisions of
the Federal Bank Holding Company Act 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.
ABC'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; discount brokerage
services; through a correspondent bank; IRA's; safe deposit box rentals; bank
money orders; and electronic funds transfer services, including wire transfers
and automated teller machines. ABC maintains a diversified loan portfolio and
makes no foreign or energy-related loans.
While ABC 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 ABC's board of directors, 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 ABC'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. ABC's objective is to establish itself as a major financial institution
in south Georgia and southeast Alabama. 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.
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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, 1998, American Bank ranked as the second of three banks in Colquitt
County on the basis of total deposits.
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, 1998, American Bank had correspondent relationships
with nine 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 in
noninterest-bearing accounts with those banks.
Heritage Community Bank
Heritage Community Bank ("Heritage Bank") was founded on December 26,
1888, and operates a full-service banking business in the city of Quitman and
Brooks County, Georgia. On December 31, 1998, Heritage Bank ranked as the
second largest of four banks in Brooks County on the basis of total deposits.
Among the services provided by Heritage Bank are checking accounts and
savings accounts, certificates of deposit and money transfers. Heritage 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. Heritage Bank also offers several credit card
products to its customers. Heritage Bank does not conduct trust activities.
As of December 31, 1998, Heritage Bank had correspondent relationships
with four other commercial banks. Heritage Bank's principal correspondent bank
is SunTrust Bank, Atlanta, Georgia. As compensation for services provided,
Heritage Bank maintains certain balances in noninterest-bearing accounts with
those banks.
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Bank of Thomas County
The Bank of Thomas County ("Thomas Bank") was incorporated in 1911 and
operates a full service banking business in the cities of Coolidge and
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, 1998, Thomas Bank ranked as the fifth largest of eight banks
in Thomas County on the basis of total deposits.
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, 1998, Thomas Bank had a correspondent relationship
with three other commercial banks. Thomas Bank's principal correspondent bank is
SunTrust Bank, Atlanta, Georgia. As compensation for services provided, Thomas
Bank maintains certain balances in noninterest-bearing accounts with those
banks.
Citizens Security Bank
Citizens Security Bank ("Security Bank") was incorporated in 1945 and
operates a full service banking business in the city of Tifton and Tift County,
the city of Ocilla and Irwin County, and the city of Douglas and Coffee County
Georgia, providing such banking services as checking and savings accounts, other
types of time deposits and money transfers. As of December 31, 1998, Security
Bank ranked as the third largest of six banks in Tift County on the basis of
total deposits.
Security Bank finances commercial, agricultural and consumer
transactions and makes and services both secured and unsecured loans to
individuals, firms and corporations. Security Bank also offers several credit
card products to its customers. Security Bank makes a variety of residential,
industrial, commercial and agricultural loans secured by real estate, including
interim construction financing. Security Bank does not conduct trust activities.
At December 31, 1998, Security Bank had correspondent relationships
with seven other commercial banks. Security Bank's principal correspondent bank
is SunTrust Bank, Atlanta, Georgia. As compensation for services provided,
Security Bank maintains certain balances in noninterest-bearing accounts with
those banks.
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Cairo Banking Company
Cairo Banking Company ("Cairo Bank") was incorporated in 1900 and
operates a full-service banking business in the city of 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, 1998, Cairo Bank ranked as the second largest of five banks in
Grady County on the basis of total deposits.
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, 1998, Cairo Bank had correspondent relationships with
five other commercial banks. Cairo Bank's principal correspondent is SunTrust
Bank, Atlanta, Georgia. As compensation for services provided, Cairo Bank
maintains certain balances in noninterest-bearing accounts with those banks.
Southland Bank
Southland Bank opened in 1887 through its predecessor, Clayton Banking
Company (now a branch of Southland Bank). The Abbeville branch 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, including
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 and full
brokerage capabilities through PFIC Securities. Southland Bank is also a
Certified SBA Lender.
As of December 31, 1998, Southland Bank had correspondent
relationships with seven other commercial banks. Southland's principal
correspondent is SunTrust Bank, Atlanta, Georgia. As compensation for services
provided, Southland Bank maintains certain balances in noninterest-bearing
accounts with those banks.
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Central Bank & Trust
Central Bank & Trust ("Central Bank") was incorporated in 1986 and
operates a full-service banking business in the city of 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,
1998, Central Bank was ranked as the third largest of the six banks in Crisp
County on the basis of total deposits.
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, 1998, Central Bank had correspondent relationships
with six other commercial banks. Central Bank's principal correspondent is
SunTrust Bank, Atlanta, Georgia. As compensation for services provided, Central
Bank maintains certain balances in noninterest-bearing accounts with those
banks.
First National Bank of South Georgia
First National Bank of South Georgia ("First National Bank") commenced
operations on May 29, 1991 on 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. First
National Bank does not conduct trust activities.
At December 31, 1998, First National Bank maintained correspondent
relationships with four commercial banks. First National Bank's principal
correspondent bank is SunTrust Bank, Atlanta, Georgia. As compensation for
services provided, First National Bank maintains certain balances in
noninterest-bearing accounts with those banks.
5
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Merchants & Farmers Bank
Merchants & Farmers Bank ("M & F Bank") was incorporated on September
24, 1925, and operates a full service banking business in the city of
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, 1998, M & F Bank was the smallest of the three commercial
banks in Seminole County on the basis of total deposits.
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, 1998, M & F Bank had corresponding relationships with
five other banks. M & F Bank's primary correspondent bank is SunTrust Bank,
Atlanta, Georgia. As compensation for services provided, M & F Bank pays
analysis charges based on services rendered.
Market Area and Competition
ABC's market area is located in South Georgia and Southeastern
Alabama. The Banks' main offices are located in the southern Georgia cities of
Albany, Cairo, Cordele, Donalsonville, Moultrie, Quitman, Thomasville and
Tifton, and the southern Alabama cities of Abbeville, Clayton, Dothan, Eufaula
and Headland. The Banks have a total of 27 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 ABC'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. See "Supervision and Regulation".
6
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Lending Policy
ABC 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 ABC'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. ABC'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 ABC'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 ABC's ongoing loan review
program, all loans are subject to sampling and objective review by an assigned
loan reviewer who is independent of the originating loan officer.
ABC actively markets its services to qualified lending customers in
both the commercial and consumer sectors. ABC'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, ABC has been successful in
attracting new commercial lending customers. At the same time, ABC actively
advertises 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. ABC 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 bank has loan officers who specialize in originating and
servicing agricultrual-related loans.
Agricultural-Related Loans. A significant portion of ABC'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 ABC's market area, management
believes that a significant portion of ABC's commercial and industrial loans are
agricultural-related. ABC 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
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Lending Activities (Continued)
Agricultural Loans. ABC classifies 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 ABC 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 ABC's
agricultural loans are guaranteed by the FmHA Guaranteed Loan Program, described
below. Agricultural loans are made with ABC's loan documentation in accordance
with ABC's lending policies and are serviced by ABC'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." ABC maintains average crop production yield statistics on its
agricultural borrowers which allows ABC to more accurately evaluate the
borrowers' cash flow projections. In order to minimize the risk of fluctuating
commodity prices, ABC 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. ABC 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 ABC
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 ABC
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. ABC'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. ABC'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. ABC provides personal trust services to its customers
through American Bank.
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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
ABC'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 either Moody's or 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 ABC'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 ABC'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.
ABC'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 ABC's
board of directors each month. Once a year, the written investment policy is
reviewed by ABC's board of directors.
The banks' securities are kept in safekeeping accounts at
correspondent banks.
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Asset/Liability Management
It is the objective of ABC 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 ABC'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 ABC
or the banks and are unencumbered.
<TABLE>
<CAPTION>
Approximate
Square
Offices Used By Footage
- ----------------------------------------------- -------------------------- -----------
<S> <C> <C>
310 First Street, S.E., Moultrie, GA ABC 7,000
24 Second Avenue, S. E., Moultrie, GA ABC and American Bank 15,500
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 Heritage Bank 11,530
Eastern Brooks County, GA Heritage Bank 1,100
529 Pine Avenue, Coolidge, GA Thomas Bank 4,000
111 E. Eighth Street, Tifton, GA Security Bank 11,700
804 W. Second Street, Tifton, GA Security Bank 2,000
301 South Irwin Avenue, Ocilla, GA Security Bank 10,000
100 South Pearle Avenue, Douglas, GA Security Bank 3,100
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
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
1607 U. S. Highway 19 South, Leesburg, GA First National Bank 7,000
109 W. Third St., Donalsonville, GA M & F Bank 8,800
Hwy 374 and 253, Donalsonville, GA M & F Bank 840
</TABLE>
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Employees
At December 31, 1998, ABC and its subsidiaries employed 362 full-time
employees and 37 part-time employees. ABC considers its relationship with its
employees to be excellent.
ABC has adopted two retirement plans for its employees, the ABC
Bancorp 401(k) Profit Sharing Plan and the ABC Bancorp Money Purchase Pension
Plan. These plans provide both deferral of compensation by the employees and
matching contributions by the Company. ABC and the banks made contributions for
all eligible employees in 1998. 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 southeast Alabama. ABC's employees are not represented by any collective
bargaining group.
SUPERVISION AND REGULATION
General
As a bank holding company, the Company 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 Office of the Comptroller of the Currency (the "OCC"),
the Federal Deposit Insurance Corporation (the "FDIC"), the DBF 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 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 Federal 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) operating a savings institution, mortgage company,
finance company, credit card company or factoring company; (ii) making or
servicing loans and certain types of leases; (iii) performing certain data
processing services; (iv) acting as fiduciary or investment or financial
advisor; (v) providing discount brokerage services; (vi) underwriting bank
eligible securities; (vii) underwriting debt and equity securities on a limited
basis through separately capitalized subsidiaries; and (viii) making investments
in corporations or projects designed primarily to promote community welfare.
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In addition, the DBF requires information with respect to the
financial condition, operations, management and intercompany relationships of
ABC and the 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
Banks under the Federal Reserve Act, which imposes certain restrictions on (i)
loans by the Banks to ABC; (ii) investments in the stock or securities of ABC by
the Banks; (iii) the Bank's taking the stock or securities of an "affiliate" as
collateral for loans by the Banks to a borrower; and (iv) the purchase of assets
from ABC by the 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 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 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%.
Retained earnings of the Banks available for payment of cash dividends
under all applicable regulations without obtaining governmental approval were
approximately $3 million as of December 31, 1998.
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.
12
<PAGE>
The FRB has issued a policy statement on the payment of cash dividends
by bank holding companies, which expresses the FRB's view that a bank holding
company should pay cash dividends only to the extent that the holding company's
net income for the past year is sufficient to cover both the cash dividends and
a rate of earning retention that is consistent with the holding company's
capital needs, asset quality and overall financial condition. The FRB also
indicated that it would be inappropriate for a holding company experiencing
serious financial problems to borrow funds to pay dividends. Furthermore, under
the prompt corrective action regulations adopted by the FRB, the FRB may
prohibit a bank holding company from paying any dividends if one or more of the
holding company's bank subsidiaries are classified as undercapitalized.
Bank holding companies are required to give the FRB prior written
notice of any purchase or redemption of its outstanding equity securities if the
gross consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of their consolidated net worth. The FRB may
disapprove such a purchase or redemption if it determines that the proposal
would continue an unsafe or unsound practice or would violate any law,
regulation, FRB order, or any condition imposed by, or written agreement with,
the FRB. This notification requirement does not apply to any company that meets
the well-capitalized standard for commercial banks, has a safety and soundness
examination rating of at least a "2" and is not subject to any unresolved
supervisory issues.
Capital Adequacy
The FRB has adopted risk-based capital guidelines for bank holding
companies. The minimum ratio of 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 provide 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.
13
<PAGE>
Section 38 to the Federal Deposit Insurance Act, as revised in
December 1992, implements the prompt corrective action provisions that Congress
enacted as a part of the Federal Deposit Insurance Corporation Improvement Act
of 1991 (the "FDIC 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.
Under the regulations of the FDIC implementing the prompt corrective
action provisions of the FDIC Act, financial institutions are placed 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.
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 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 Banks are "well capitalized"
institutions.
The OCC's regulations establish two capital standards for national
banks: a leverage requirement and a risk-based capital requirement. In
addition, the OCC may, on a case-by-case basis, establish individual minimum
capital requirements for a national bank that vary from the requirements which
would otherwise apply under OCC regulations. A national bank that fails to
satisfy the capital requirements established under the OCC's regulations will be
subject to such administrative action or sanctions as the OCC deems appropriate.
14
<PAGE>
The leverage ratio adopted by the OCC requires a minimum leverage
ratio of 3% for national banks rated composite 1 under the CAMEL rating system
for banks. National banks not rated composite 1 under the CAMEL rating system
for banks are required to maintain a minimum leverage ratio of 4% to 5%,
depending upon the level and nature of risks of their operations. For purposes
of the OCC's leverage requirement, Tier I capital generally consists of common
stockholders' equity and retained income and certain non-cumulative perpetual
preferred stock and related income, except that no intangibles and certain
purchased mortgage servicing rights and purchased credit card relationships may
be included in capital.
The risk-based capital requirements established by the OCC's
regulations require national banks to maintain total capital equal to at least
8% of total risk-weighted assets. For purposes of the risk-based capital
requirement, total capital means Tier 1 capital plus Tier 2 capital, provided
that the amount of Tier 2 capital may not exceed the amount of Tier 1 capital,
less certain assets. The components of Tier 2 capital include certain permanent
and maturing capital instruments that do not qualify as core capital and general
valuation loan and lease loss allowances up to a maximum of 1.25% of risk-
weighted assets.
The OCC has revised its risk-based capital requirements to permit the
OCC to require higher levels of capital for an institution in light of its
interest rate risk. In addition, the OCC has proposed that a bank's interest
rate risk exposure would be qualified using either the measurement system set
forth in the proposal or the institution's internal model for measuring such
exposure, if such model is determined to be adequate by the institution's
examiner. Small institutions that are highly capitalized and have minimum
interest rate risk would be exempt from the rule unless otherwise determined by
the OCC. The Company has not determined what effect, if any, the OCC's proposed
interest rate risk component would have on the Company's national bank
subsidiary's capital if adopted as proposed.
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 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.
Under the Financial Institutions Reform, Recovery and Enforcement Act,
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 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. Default is
defined generally as the appointment of a conservator or receiver, and 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. The FDIC's claim for damages is superior to claims of depositors,
secured creditors and holders of subordinated debt (other than affiliates) of
the commonly controlled insured depository institution.
15
<PAGE>
FDIC Insurance Assessments
The Banks are subject to FDIC deposit insurance assessments for the
Bank Insurance Fund (the "BIF"), which as of December 31, 1998, ranged from 0 to
27 basis points per $100 of insured deposits, based on the risk a particular
institution poses to its deposit insurance fund. The risk classification is
based on an institution's capital group and supervisory subgroup assignment.
On September 30, 1996, the President signed the Deposit Insurance Fund
Act of 1996 ("DIFA") which was part of the omnibus spending bill enacted by
Congress at the end of its 1996 session. DIFA provides that the FDIC may not
set semi-annual assessments with respect to the BIF in excess of the amount
needed to maintain the 1.25% designated reserve ratio or, if the reserve ratio
is less than the designated reserve ratio, to increase the reserve ratio to the
designated reserve ratio. In addition, DIFA mandates the merger of BIF and the
Savings Association Insurance Fund (the "SAIF"), effective January 1, 1999, only
if no insured depository institution is a savings association on that date. The
combined deposit insurance fund would be called the "deposit insurance fund" or
"DIF".
DIFA also imposes assessments against both SAIF and BIF deposits to
avoid predicted default on the bonds issued by the Financing Corporation
("FICO") as deposits in savings institutions continue to decline. DIFA amends
the Federal Home Loan Bank Act to impose the FICO assessment against both SAIF
and BIF deposits beginning after December 31, 1996. The assessment imposed on
insured depository institutions with respect to any BIF-assessable deposit will
be assessed at a range equal to one-fifth of the rate (approximately 1.3 basis
points) of the assessments imposed on insured depository institutions with
respect to any SAIF-asssessable deposit (approximately 6.7 basis points). The
FICO assessment for 1996 was paid entirely by SAIF-insured institutions, but
BIF-insured banks will pay the same FICO assessment as SAIF-insured institutions
beginning as of the earlier of December 31, 1999, or the date as of which the
last savings association ceases to exist.
16
<PAGE>
Community Reinvestment Act
The Banks are subject to certain fair lending requirements and
reporting obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the Federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of its local communities, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures
that may be required for a violation of certain fair lending laws, the Federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.
A bank's compliance with its CRA obligations is based on a
performance-based evaluation system which bases CRA ratings on an institution's
lending service and investment performance. When a bank holding company applies
for approval to acquire a bank or other bank holding company, the FRB will
review the assessment of each subsidiary bank of the applicant bank holding
company, and such records may be the basis for denying the application. In
connection with its assessment of CRA performance, the appropriate bank
regulatory agency assigns a rating of "outstanding", "satisfactory", "needs to
improve" or "substantial noncompliance". As of December 31, 1998, all of the
Banks had a CRA rating of at least satisfactory.
On April 19,1995, the four Federal bank regulatory agencies adopted
revisions to the regulations promulgated pursuant to 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 scheduled to begin for institutions with assets of less than
$250 million that are owned by a holding company with total assets of less than
$1 billion. Congress and various Federal agencies (including, in addition to
the bank regulatory agencies, the Department of 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.
Nearly all of these suits have been settled (some for substantial sums) without
a full adjudication on the merits.
17
<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.
Other Regulatory Action
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 Act.
The Federal Interstate Act authorizes the OCC and FDIC to approve
interstate branching de novo by national and state banks, respectively, only in
states which specifically allow for such branching. The Federal Interstate Act
also requires the appropriate Federal banking agencies to prescribe regulations
by June 1, 1997 which prohibit any out-of-state bank from using the interstate
branching authority primarily for the purpose of deposit production. These
regulations must include guidelines to ensure that interstate branches operated
by an out-of-state bank in a host state are reasonably helping to meet the
credit needs of the communities which they serve.
Other legislative proposals are pending before Congress, the effect of
which would reform the Glass-Steagall Act to allow banks and bank holding
companies to engage in additional types of non-banking activities as well as
effect regulatory relief for financial institutions. The regulatory relief
provisions contained in several bills would, if enacted, eliminate or reduce and
simplify disclosures and reporting requirements contained in current statues and
regulations. The likelihood of enactment of any of the pending or proposed
legislation is unknown.
18
<PAGE>
In February 1996, Georgia adopted the "Georgia Interstate Branching
Act," which permits 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 between July 1, 1996 and June 30, 1998. 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.
Federal Home Loan Bank System
All of the Banks have correspondent relationships with the Federal
Home Loan Bank of Atlanta ("FHLB Atlanta"), which is one of 12 regional Federal
Home Loan Banks ("FHLBs") that administer the home financing credit function of
savings companies. Each FHLB serves as a reserve or central bank for its
members within its assigned region. FHLBs are funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System and make
loans to members (i.e., advances) in accordance with policies and procedures,
established by the Board of Directors of the FHLB which are subject to the
oversight of the Federal Housing Finance Board. All advances from the FHLB are
required to be fully secured by sufficient collateral as determined by the FHLB.
In addition, all long-term advances are required to provide funds for
residential home financing.
FHLB Atlanta provides certain services to certain of the Banks 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, the
Banks maintain certain balances with FHLB Atlanta in noninterest-bearing
accounts.
Under Federal law, the FHLBs are required to provide funds for the
resolution of troubled savings companies and to contribute to low- and
moderately-priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects.
19
<PAGE>
The Federal Financial Institutions Examination Council recently issued
an interagency statement to the chief executive officers of all federally
supervised financial institutions regarding year 2000 project management
awareness. It is expected that unless financial institutions address the
technology issues relating to the coming of the year 2000, there will be major
disruptions in the operations of financial institutions. The statement provides
guidance to financial institutions, providers of data services, and all
examining personnel of the federal bank regulatory agencies regarding the year
2000 problem. The federal bank regulatory agencies intend to conduct year 2000
compliance examinations, and the failure to implement a year 2000 program may be
seen by the federal bank regulatory agencies as an unsafe and unsound banking
practice. If a federal bank regulatory agency determines that the Banks are
operating in an unsafe and unsound manner, the Banks may be required to submit a
compliance plan. Failure to submit a compliance plan or to implement an
accepted plan may result in enforcement action being taken, which may include a
cease and desist order and fines.
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 Banks may be affected by
such statute or regulation.
ITEM 2. PROPERTIES
The principal properties of ABC consist of the properties of the
Banks. For a description of the properties of the Banks, see "Item 1 - Business
of ABC and the Banks - Properties" included elsewhere in this Annual Report.
ITEM 3. LEGAL PROCEEDINGS
Neither ABC nor any of the 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 ABC are any such proceedings contemplated or
threatened against it or the Banks.
20
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of ABC's shareholders during the
fourth quarter of 1998.
ITEM 4.5 EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
the executive officers of ABC.
<TABLE>
<CAPTION>
Name, Age and Position with the Principal Occupation for the Last Five
Term as Officer Registrant Years and Other Directorships
- ------------------------- ------------------- -------------------------------------------------------
<S> <C> <C>
Kenneth J. Hunnicutt; 62; President, Chief Chief Executive Officer of ABC Bancorp since 1994 and
Officer since 1981 Executive Officer President since 1981. Mr. Hunnicutt served as Senior
and Director 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 banks.
W. Edwin Lane, Jr; 44; Executive Vice Executive Vice President and Chief Financial Officer of
Officer since January 1, President and ABC Bancorp since January 1, 1995. Mr. Lane served as
1995 Chief Financial Controller of First Liberty Bank, Macon, Georgia from
Officer August 1992 to December 1994. Mr. Lane was
associated with Mauldin & Jenkins, Certified Public
Accountants, from 1985 to 1992, where he served as an
audit manager from 1989 to 1992.
</TABLE>
Officers serve at the discretion of the Board of Directors.
21
<PAGE>
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 1997 and 1998; and (b) the
amount of quarterly dividends declared on the common stock during the
periods indicated.
<TABLE>
<CAPTION>
Calendar Period Bid Prices Cash
------------------- --------------------- Dividends
1998 Low High Declared
------------------- --------- -------- -----------
<S> <C> <C> <C>
First quarter $ 16.500 $ 20.375 $ .10
Second quarter 15.750 18.125 .10
Third quarter 11.500 16.375 .10
Fourth quarter 12.000 13.250 .10
</TABLE>
<TABLE>
<CAPTION>
Calendar Period Bid Prices Cash
----------------- --------------------- Dividends
1997 Low High Declared
----------------- --------- -------- -----------
<S> <C> <C> <C>
First quarter $ 13.375 $ 16.375 $ .08
Second quarter 15.500 17.250 .10
Third quarter 16.000 17.375 .10
Fourth quarter 15.625 19.875 .10
</TABLE>
(b) As of March 1, 1999, there were approximately 1,433 holders of record of
the Common Stock.
(c) ABC paid an annual dividend on its common stock of $.40 and $.38 per share
for fiscal years 1998 and 1997, respectively.
22
<PAGE>
. Selected Consolidated Financial Information
The following table presents selected consolidated financial
information for ABC. The data set forth below are derived from the audited
consolidated financial statements of ABC. 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,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(Dollars in Thousands, Except Per Share Data)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Total assets $724,946 $691,886 $673,162 $531,243 $464,084
Total loans 477,194 490,244 452,844 319,471 285,575
Total deposits 633,325 600,711 577,905 466,317 409,645
Investment securities 154,546 123,219 135,266 101,695 96,200
Shareholders' equity 71,834 68,153 62,970 51,955 45,753
Selected Income Statement Data:
Interest income $ 59,894 $ 58,649 $ 50,586 $ 40,951 $ 33,021
Interest expense 26,444 25,950 22,324 17,367 12,717
-------- -------- --------- -------- --------
Net interest income 33,450 32,699 28,262 23,584 20,304
Provision for loan losses 5,505 2,731 1,919 1,241 988
Other income 9,699 7,736 6,532 4,904 4,466
Other expenses 27,996 27,139 22,878 18,127 17,072
-------- -------- --------- -------- --------
Income before tax 9,648 10,565 9,997 9,120 6,710
Income tax expense 2,735 3,119 2,839 2,752 1,945
-------- -------- --------- -------- --------
Net income $ 6,913 $ 7,446 $ 7,158 $ 6,368 $ 4,765
======== ======== ========= ======== ========
Per Share Data:
Net income - basic $ 0.95 $ 1.03 $ 1.01 $ 0.95 $ 0.76
Net income - diluted 0.95 1.02 1.01 0.95 0.76
Book value 9.95 9.40 8.69 7.76 6.87
Tangible book value 8.78 8.12 7.69 7.40 6.46
Dividends 0.40 0.38 0.32 0.28 0.23
Profitability Ratios:
Net income to average total assets 0.99% 1.10% 1.21% 1.34% 1.11%
Net income to average stockholder's equity 10.07 11.35 12.19 13.01 12.83
Net interest margin 5.25 5.36 5.24 5.43 5.14
</TABLE>
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- ----- -------- -------- -------
(Dollars in Thousands, Except Per Share Data)
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loan Quality Ratios:
Net charge-offs to total loans 0.62% 0.48% 0.39% 0.16% 0.25%
Reserve for loan losses to total loans
and OREO 2.13 1.55 1.60 1.84 1.81
Nonperforming assets to total loans
and OREO 1.99 2.41 1.39 1.08 1.50
Reserve for loan losses to
nonperforming loans 116.25 75.86 135.34 215.91 124.53
Reserve for loan losses to total
nonperforming assets 107.25 64.38 115.59 170.68 120.97
Liquidity Ratios:
Loans to total deposits 75.35% 81.61% 78.36% 68.51% 69.71%
Loans to average earnings assets 74.85 80.45 84.04 73.53 72.32
Noninterest-bearing deposits to
total deposits 15.78 15.00 15.06 17.56 17.14
Capital Adequacy Ratios:
Common stockholders' equity to
total assets 9.91% 9.85% 9.35% 9.78% 9.86%
Total stockholders' equity to total assets 9.91 9.85 9.35 9.78 9.86
Dividend payout ratio 42.11 36.89 31.68 29.47 30.26
</TABLE>
24
<PAGE>
. SELECTED CONSOLIDATED FINANCIAL INFORMATION (Continued)
SELECTED QUARTERLY FINANCIAL DATA:
<TABLE>
<CAPTION>
Quarters Ended December 31, 1998
-------------------------------------------------
4 3 2 1
---------- ---------- ---------- ----------
(Dollars in Thousands, Except Per Share Data)
-------------------------------------------------
<S> <C> <C> <C> <C>
Selected Income Statement Data:
Interest income $ 15,024 $ 15,268 $ 14,880 $ 14,722
Net interest income 8,528 8,517 8,254 8,151
Net income 3,558 1,502 1,619 234
Per Share Data:
Net income - basic 0.49 0.21 0.22 0.03
Net income - diluted 0.49 0.21 0.22 0.03
Dividends 0.10 0.10 0.10 0.10
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended December 31, 1997
---------------------------------------------------
4 3 2 1
---------- ---------- ---------- ------------
(Dollars in Thousands, Except Per Share Data)
---------------------------------------------------
<S> <C> <C> <C> <C>
Selected Income Statement Data:
Interest income $ 14,990 $ 14,858 $ 14,570 $ 14,231
Net interest income 8,397 8,107 8,125 8,070
Net income 2,037 1,528 2,022 1,859
Per Share Data:
Net income - basic 0.28 0.21 0.28 0.26
Net income - diluted 0.28 0.20 0.28 0.25
Dividends 0.10 0.10 0.10 0.08
</TABLE>
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Information
ABC's 1998 Annual Report contains forward-looking statements in
addition to historical information. ABC cautions that there are various
important factors that could cause actual results to differ materially from
those indicated in the forward-looking statements; accordingly, there can be no
assurance that such indicated result will be realized. These factors include
legislative and regulatory initiatives regarding deregulation and restructuring
of the banking industry; the extent and timing of the entry of additional
competition in ABC's markets; potential business strategies, including
acquisitions or dispositions of assets or internal restructuring, that may be
pursued by ABC, state and federal banking regulations; changes in or application
of environmental and other laws and regulations to which ABC is subject;
political, legal and economic conditions and developments; financial market
conditions and the results of financing efforts; changes in commodity prices and
interest rates; weather, natural disasters and other catastrophic events; and
other factors discussed in ABC's filings with the Securities and Exchange
Commission, including its Annual Report on Form 10-K. The words "believe",
"expect", "anticipate", "project", and similar expressions signify forward-
looking statements. Readers are cautioned not to place undue reliance on any
forward-looking statements made by or on behalf of ABC. Any such statement
speaks only as of the date the statement was made. ABC undertakes no obligation
to update or revise any forward looking statements. Additional information with
respect to factors that may cause results to differ materially from those
contemplated by such forward-looking statements is included in the ABC's
current and subsequent filings with the Securities and Exchange Commission.
General
ABC's principal asset is its ownership of the Banks. Accordingly, its
results of operations are primarily dependent upon the results of operations of
the Banks. The 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 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 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 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.
26
<PAGE>
Results of Operations for Years Ended December 31, 1998, 1997 and 1996
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 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.
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 13 basis points or 2.38% to 5.34% in
1998 as compared to 5.47% in 1997. This decrease in net interest margin
resulted from a decrease of 23 basis points in average yield earned on interest-
earning assets accompanied by a decrease of 5 basis points in average rate paid
on interest-bearing liabilities. Interest earned on loans decreased 22 basis
points; interest earned on Federal funds sold decreased 49 basis points;
interest earned on securities, including interest-bearing deposits in banks,
decreased 25 basis points; while interest paid on interest-bearing liabilities
decreased 5 basis points. Net interest income on a taxable-equivalent basis
was $34,063,000 in 1998 as compared to $33,320,000 in 1997, representing an
increase of $743,000 or 2.23%. Net interest income on a taxable-equivalent
basis was $33,320,000 in 1997 as compared to $28,790,000 in 1996, representing
an increase of $4,530,000 or 15.73%. Net interest margin increased 2.43% to
5.47% in 1997 from 5.34% in 1996 on an increase of 13.11% in average interest-
earning assets and an increase of 14.87% in average interest-bearing
liabilities. Interest earned on average interest-earning assets increased 23
basis points to 9.72% in 1997 as compared to 9.49% in 1996, while interest paid
on interest-bearing liabilities increased 6 basis points to 4.94% in 1997 as
compared to 4.88% in 1996.
Average interest-earning assets increased $28,001,000 or 4.59% to
$637,501,000 in 1998 from $609,500,000 in 1997. Average loans increased
$20,374,000; average investments, including interest-bearing deposits in banks,
increased $10,078,000; and average federal funds sold decreased $2,451,000.
The increase in average interest-earning assets was funded by an increase in
average deposits of $31,060,000 or 5.39% to $607,039,000 in 1998 from
$575,979,000 in 1997. By comparison, average interest-earning assets increased
$70,659,000 or 13.11% to $609,500,000 in 1997 from $538,841,000 in 1996. The
increase in average interest-earning assets in 1997 was funded by an increase in
average deposits of $73,336,000, or 14.59%. In 1998 and 1997, approximately 14%
of the average deposits were noninterest-bearing deposits.
27
<PAGE>
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. ABC segregates its loan portfolio by type of loan
and utilizes this segregation in evaluating exposure to risks within the
portfolio. In addition, based on internal reviews and external reviews
performed by independent auditors and regulatory authorities, ABC further
segregates its loan portfolio by loan classifications within each type of loan
based on an assessment of risk for a particular loan or group of loans. Certain
reviewed loans require specific allowances. Allowances are provided for other
types and classifications of loans based on anticipated loss rates. Allowances
are also provided for loans that are reviewed by management and considered
creditworthy and loans for which management determines no review is required.
In establishing allowances, management considers historical loan loss experience
with an emphasis on current loan quality trends, current economic conditions and
other factors in the markets where the subsidiary banks operate. Factors
considered include among others, unemployment rates, effect of weather on
agriculture and significant local economic events, such as major plan closings.
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 $5,505,000 in 1998, $2,731,000 in 1997 and $1,919,000 in 1996. The
increase in the provision for loan losses of $2,774,000, or 101.57%, as compared
to 1997 was required to replenish the allowance for loan losses for
approximately $3,000,000 of net charge-offs in 1998 and to cover potential
losses in the loan portfolio resulting from the deterioration in asset quality
of collateral assigned to secure related loans. During 1998 average loans
increased $20,374,000 or 4.29% over 1997. The increase in the provision for loan
losses in 1997 of $812,000, or 42.31%, as compared with 1996 was accompanied by
an increase of 8.26% in total loans in 1997 and an increase in the allowance for
loan losses of 4.87%. The allowance for loan losses increased $2,565,000 to
$10,192,000 at December 31, 1998 from $7,627,000 at December 31, 1997. Net
charge-offs represented 53.41% of the provision for loan losses in 1998 as
compared to 87.04% in 1997. The loan charge-offs for 1998 represented .59% of
average loans outstanding during the year as compared to .50% for 1997 and .44%
for 1996. At December 31, 1998, the allowance for loan losses was 2.14% of
total loans outstanding as compared to an allowance for loan losses of 1.56% of
total loans outstanding at December 31, 1997 and 1.61% of total loans
outstanding at December 31, 1996. The allowance for loan losses increased
$354,000 to $7,627,000 in 1997 from $7,273,000 in 1996. 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
consolidated loan portfolio.
Due to adverse economic conditions in early 1998, it became apparent
that several agriculturally related loans and commercial business loans were not
performing according to the loan agreements. Management intensified its efforts
to identify those nonperforming loans, to charge off loans which were
considered in the loss category and to adequately reserve for other loans
determined to be at risk. Loan loss reserves are determined based on
management's internal review of nonperforming loans, delinquency trends, the
quality of collateral assets and charge-off trends.
28
<PAGE>
Average total assets increased $23,513,000 or 3.48% to $700,094,000 in
1998 as compared to $676,581,000 in 1997. The increase in average total assets
was accompanied by an increase in average deposits of $31,060,000 or 5.39%.
Average total assets increased $86,204,000 or 14.60% to $676,581,000 in 1997 as
compared to $590,377,000 in 1996. The increase in average total assets was
accompanied by an increase in average total deposits of $73,336,000 or 14.59% to
$575,979,000 in 1997 from $502,643,000 in 1996.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed only to U. S. Dollar interest rate changes and,
accordingly, the Company manages exposure by considering the possible changes in
the net interest margin. The Company does not have any trading instruments nor
does it classify any portion of the investment portfolio as held for trading.
The Company does not engage in any hedging activities or enter into any
derivative instruments with a higher degree of risk than mortgage backed
securities which are commonly pass through securities. Finally, the Company has
no exposure to foreign currency exchange rate risk, commodity price risk, and
other market risks.
Interest rates play a major part in the net interest income of a
financial institution. The sensitivity to rate changes is known as "interest
rate risk." The repricing of interest earning assets and interest-bearing
liabilities can influence the changes in net interest income. As part of the
Company's asset/liability management program, the timing of repriced assets and
liabilities is referred to as Gap management. It is the policy of the Company
to maintain a Gap ratio in the one-year time horizon of .80 to 1.20. As
indicated by the Gap analysis included in this annual report, the Company is
somewhat liability sensitive in relation to changes in market interest rates.
Being liability sensitive would result in net interest income decreasing in a
rising rate environment and increasing in a declining rate environment. See
"Asset/Liability Management" included in SELECTED STATISTICAL INFORMATION OF ABC
BANCORP.
The Company uses simulation analysis to monitor changes in net
interest income due to changes in market interest rates. The simulation of
rising, declining and flat interest rate scenarios allow management to monitor
and adjust interest rate sensitivity to minimize the impact of market interest
rate swings. The analysis of the impact on net interest income over a twelve
month period is subjected to a gradual 200 basis point increase or decrease in
market rates on net interest income and is monitored on a quarterly basis. The
most recent simulation model projects net interest income would decrease 1.71%
if rates rise gradually over the next year. On the other hand, the model
projects net interest income to increase 1.08% if rates decline over the next
year.
29
<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,
---------------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------- ------------------------------ ------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
--------- --------- ---------- --------- --------- --------- --------- --------- ---------
(Dollars in Thousands)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of unearned
interest $ 495,421 $ 51,584 10.41% $ 475,047 $ 50,502 10.63% $ 395,822 $ 42,322 10.69%
Investment securities:
Taxable 97,747 5,990 6.13 104,161 6,511 6.25 99,734 6,100 6.12
Nontaxable 22,946 1,803 7.86 22,872 1,826 7.98 20,559 1,553 7.55
Interest-bearing deposits
in banks 20,382 1,077 5.28 3,964 232 5.85 - - -
Federal funds sold 1,005 53 5.27 3,456 199 5.76 22,726 1,139 5.01
--------- -------- --------- -------- --------- -------
Total interest-earning
assets 637,501 60,507 9.49 609,500 59,270 9.72 538,841 51,114 9.49
--------- -------- --------- -------- --------- -------
Noninterest-earning assets:
Cash 23,802 28,620 25,336
Allowance for loan losses (9,933) (7,458) (6,776)
Unrealized gain (loss) on
available for sale
securities 406 (121) (338)
Other assets 48,318 46,040 33,314
--------- --------- ---------
Total noninterest-earning
assets 62,593 67,081 51,536
--------- --------- ---------
Total assets $ 700,094 $ 676,581 $ 590,377
========= ========= =========
</TABLE>
30
<PAGE>
Average Balances and Net Income Analysis (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1998 1997
------------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expense Rate Paid
------------------------------------------------------------------------
(Dollars in Thousands)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest-bearing
demand deposits $174,443 $ 5,439 3.12% $166,877 $ 5,089 3.05%
Time deposits 348,826 19,971 5.73 330,621 19,139 5.79
Other short-term borrowings 835 41 4.91 2,804 154 5.49
Other borrowings 16,494 993 6.02 25,080 1,568 6.25
-------- ------- -------- -------
Total interest-bearing
liabilities 540,598 26,444 4.89 525,382 25,950 4.94
-------- ------- -------- -------
Noninterest-bearing liabilities
and stockholders' equity:
Demand deposits 83,770 78,481
Other liabilities 7,068 7,118
Stockholders' equity 68,658 65,600
-------- --------
Total noninterest-bearing
liabilities and
stockholders' equity 159,496 151,199
-------- --------
Total liabilities and
stockholders' equity $700,094 $676,581
======== ========
Interest rate spread 4.60% 4.78%
==== ====
Net interest income $34,063 $33,320
======= =======
Net interest margin 5.34% 5.47%
==== ====
<CAPTION>
--------------------------------------------
1996
--------------------------------------------
Interest Average
Average Income/ Yield
Balance Expense Rate Paid
---------------------------------------------
---------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest-bearing
demand deposits $149,503 $ 4,558 3.05%
Time deposits 283,054 16,377 5.79
Other short-term borrowings 5,713 221 3.87
Other borrowings 19,113 1,168 6.11
-------- -------
Total interest-bearing
liabilities 457,383 22,324 4.88
--------
Noninterest-bearing liabilities
and stockholders' equity:
Demand deposits 70,086
Other liabilities 4,168
Stockholders' equity 58,740
--------
Total noninterest-bearing
liabilities and
stockholders' equity 132,994
--------
Total liabilities and
stockholders' equity $590,377
========
Interest rate spread 4.61%
====
Net interest income $28,790
=======
Net interest margin 5.34%
====
</TABLE>
31
<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,
---------------------------------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
------------------------------------------ --------------------------------------------
Increase Changes Due To Increase Changes Due To
-------------------- -----------------------
(Decrease) Rate Volume (Decrease) Rate Volume
----------- ----- ------ ---------- ---- -------
(Dollars in Thousands)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans $ 1,082 $ (1,084 ) $ 2,166 $ 8,180 $ (291) $ 8,471
Interest on securities:
Taxable (521) (120) (401) 411 140 271
Nontaxable (23) (29) 6 273 98 175
Interest-bearing deposits
in banks 845 (116) 961 232 - 232
Interest on Federal funds (146) (5) (141) (940) 26 (966)
--------- --------- -------- -------- -------- ---------
Total interest income 1,237 (1,354) 2,591 8,156 (27) 8,183
--------- --------- -------- -------- -------- ---------
Expense from interest-bearing
liabilities:
Interest on savings and interest-
bearing demand deposits 350 119 231 531 1 530
Interest on time deposits 832 (222) 1,054 2,762 10 2,752
Interest on short-term
borrowings (113) (5) (108) (67) 46 (113)
Interest on other borrowings (575) (38) (537) 400 35 365
--------- --------- -------- -------- -------- ---------
Total interest expense 494 (146) 640 3,626 92 3,534
--------- --------- -------- -------- -------- ---------
Net interest income $ 743 $ (1,208) $ 1,951 $ 4,530 $ (119) $ 4,649
========= ========== ======== ======== ======== =========
</TABLE>
32
<PAGE>
Noninterest Income
Service charges on deposit accounts increased $211,000 or 3.83% to
$5,720,000 in 1998 as compared to $5,509,000 in 1997 on an increase in average
deposits of $31.060,000 or 5.39% to $607,039,000 in 1998 from $575,979,000 in
1997. The significant increase in service charges on deposit accounts of
$787,000 or 16.67% to $5,509,000 in 1997 as compared to $4,722,000 in 1996
resulted from the sizable increase of $73,336,000 in average deposits in 1997
over 1996. Approximately $48,000,000 or 65% of the increase in average deposits
in 1997 over 1996 was attributable to the average deposits of Southland Bank, a
subsidiary bank acquired in June of 1996 and accounted for as a purchase. With
the expansion of mortgage loan origination activities during the last three
years, origination fees on mortgages have increased significantly during the
last two years as evidenced by an increase of $438,000 or 98.43% in 1998 over
1997 and an increase of $278,000 or 166.47% in 1997 over 1996. In 1998, ABC
recognized nontaxable income of $1,200,000 in life insurance benefits upon the
death of a former officer and director of a subsidiary bank. This nonrecurring
transaction represented 12.37% of total noninterest income in 1998 and 17.36% of
consolidated net income for 1998. All other noninterest income increased
$114,000 or 6.40% in 1998 over 1997 as compared to $139,000 or 8.46% in 1997
over 1996.
Following is a comparison of noninterest income for 1998, 1997 and
1996.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
(Dollars in Thousands)
----------------------------------
Service charges on deposit accounts $ 5,720 $ 5,509 $ 4,722
Mortgage origination fees 883 445 167
Other service charges, commissions
and fees 506 474 500
Nontaxable life insurance benefits 1,200 - 24
Other income 1,390 1,308 1,119
---------- ---------- ----------
$ 9,699 $ 7,736 $ 6,532
========== ========== ==========
</TABLE>
33
<PAGE>
Noninterest Expense
Salaries and employee benefits increased $283,000 or 2.06% to
$14,025,000 in 1998 from $13,742,000 in 1997. Although individual salaries and
employee benefits increased during the year, the moderate increase in total
salaries and employee benefits was achieved by a reduction of total personnel
employed during the year of approximately 3%. Salaries and employee benefits
increased $2,388,000 or 21.03% in 1997 over 1996, of which $875,000 was
attributable to Southland Bank and $226,000 was attributable to the acquisition
of the Douglas branch of Security 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 $362,000 or 9.15% to
$4,320,000 in 1998 as compared to $3,958,000 in 1997. The increase in expense
was attributable to an increase of $143,000 in depreciation expense,
representing approximately 40% of the total increase. Increased rentals of
office space and equipment, and general increases in utilities, property taxes
and maintenance expense accounted for the majority of additional expense.
Equipment and occupancy expense increased $795,000 or 25.13% in 1997 over 1996,
of which $311,000 was attributable to Southland Bank and $50,000 was
attributable to the Douglas branch of Security Bank. The remaining increase was
due to normal expansion within its banking subsidiaries.
Amortization of intangible assets increased $107,000 in 1998 over
1997. This increase represents the additional amount of cost amortized in 1998
over 1997 for the purchase of the Douglas branch of Security Bank. Amortization
of intangible assets increased $257,000 in 1997 over 1996. 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 acquisitions of Southland Bank
and the Douglas branch which were accounted for as purchase transactions.
Merger and acquisition expense of $406,000 in 1997 resulted from the
acquisition of one financial institution and a branch of another financial
institution in 1997. Merger and acquisition expense of $708,000 in 1996 resulted
from the acquisition of four financial institutions in 1996. There was no
significant amount of merger expense in 1998.
All other noninterest expense increased $507,000 or 6.12% in 1998 over
1997. Approximately 50% of the increase in 1998 was attributable to an increase
of $246,000 in data processing fees. Under terms of the agreement with ABC's
third party provider of main frame hardware for computer services and the
software for processing computer applications, the provider abates fees for one
year for services provided for newly acquired banks. In 1998, fees were
assessed for services provided for the full year for recently acquired banks for
which fees were assessed for only a portion of the year in 1997. All other
noninterest expense increased $1,123,000 in 1997 over 1996, of which $770,000
was attributable to Southland Bank and $74,000 was attributable to Douglas.
34
<PAGE>
Noninterest Expense (Continued)
Following is an analysis of noninterest expense for 1998, 1997 and
1996.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1998 1997 1996
----------- ---------- --------
<S> <C> <C> <C>
(Dollars in Thousands)
-------------------------------------
Salaries and employee benefits $ 14,025 $ 13,742 $ 11,354
Equipment and occupancy 4,320 3,958 3,163
Merger and acquisition expense 4 406 708
Amortization of intangible assets 851 744 487
Data processing fees 774 528 586
Stationery and supplies expense 476 560 616
Other expense 7,546 7,201 5,964
---------- ---------- ----------
$ 27,996 $ 27,139 $ 22,878
========== ========== ==========
</TABLE>
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.
35
<PAGE>
Asset/Liability Management (Continued)
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.
Income associated with interest-earning assets and costs associated 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, 1998,
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.
36
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1998
--------------------------------------------------------------------------
Maturing or Repricing Within
--------------------------------------------------------------------------
Zero to Three
Three Months to One to Over
Months One Year Three Years Three Years Total
--------- ----------- ------------- ---------------- ---------
(Dollars in Thousands)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning assets:
Interest-bearing deposits in banks $ 10,417 $ 4,000 $ - $ - $ 14,417
Investment securities 61,783 42,258 17,396 33,109 154,546
Loans 114,558 148,783 121,801 92,052 477,194
--------- --------- --------- --------- ---------
186,758 195,041 139,197 125,161 646,157
--------- --------- --------- --------- ---------
Interest-bearing liabilities:
Interest-bearing demand deposits (1) - 39,325 93,202 - 132,527
Savings (1) - - 59,719 - 59,719
Certificates less than $100,000 76,511 125,664 36,264 9,302 247,741
Certificates, $100,000 and over 29,246 54,397 7,734 2,004 93,381
Other short-term borrowings 883 - - - 883
Other borrowings 7,500 - 4,350 - 11,850
--------- --------- --------- --------- ---------
114,140 219,386 201,269 11,306 546,101
--------- --------- --------- --------- ---------
Interest rate sensitivity gap $ 72,618 $ (24,345) $ (62,072) $ 113,855 $ 100,056
========= ========= ========= ========= =========
Cumulative interest rate
sensitivity gap $ 72,618 $ 48,273 $ (13,799) $ 100,056
========= ========= ========= =========
Interest rate sensitivity gap ratio 1.64 0.89 0.69 11.07
========= ========= ========= =========
Cumulative interest rate
sensitivity gap ratio 1.64 1.14 0.97 1.18
========= ========= ========= =========
</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 Three Years" category. It has also
found that the money-market checking deposits reprice between three months
to one year, on the average.
37
<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, 67% of the investment portfolio matures or reprices within one
year or less.
Types of Investments
The amortized cost and fair value of investments in securities at
December 31, 1998 and 1997 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, 1998:
U. S. Government and agency securities $ 65,146 $ 278 $ (16) $ 65,408
Mortgage-backed securities 63,677 198 (180) 63,695
State and municipal securities 6,097 273 - 6,370
Other securities 525 - (65) 460
------------ ----------- -------- ------------
$ 135,445 $ 749 $ (261) $ 135,933
============ =========== ======== ============
December 31, 1997:
U. S. Government and agency securities $ 79,636 $ 287 $ (101) $ 79,822
Mortgage-backed securities 6,984 120 (19) 7,085
State and municipal securities 5,660 174 - 5,834
Other securities 525 - (67) 458
------------ ----------- -------- ------------
$ 92,805 $ 581 $ (187) $ 93,199
============ =========== ======== ============
Securities Held to Maturity
December 31, 1998:
U. S. Government and agency securities $ 999 $ 2 $ - $ 1,001
Mortgage-backed securities 1,662 25 - 1,687
State and municipal securities 15,952 686 (1) 16,637
------------ ----------- ------- ------------
$ 18,613 $ 713 $ (1) $ 19,325
============ =========== ======== ============
December 31, 1997:
U. S. Government and agency securities $ 8,995 $ 1 $ (10) $ 8,986
Mortgage-backed securities 2,951 27 (10) 2,968
State and municipal securities 18,074 557 (8) 18,623
------------ ----------- ------- ------------
$ 30,020 $ 585 $ (28) $ 30,577
============ =========== ======== ============
</TABLE>
38
<PAGE>
Maturities
The amounts of investments in securities in each category as of
December 31, 1998 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 $ 6,720 5.78% $ 3,010 7.99%
After one year through five years 123,839 5.75 8,831 7.17
After five years through ten years 1,665 7.08 6,938 7.40
After ten years - - 3,543 7.25
----------- ------ ---------- ----
$ 132,224 5.77% $ 22,322 7.36%
=========== ==== ========== ====
</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%.
39
<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 and commercial real estate mortgages, which constituted
approximately 50% of the Company's loan portfolio as of December 31, 1998. The
amount of loans outstanding at the indicated dates is shown in the following
table according to type of loans.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- --------- ---------
(Dollars in Thousands)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and financial $ 70,282 $ 72,171 $ 69,772 $ 48,031 $ 40,185
Agricultural 36,567 41,882 35,525 22,716 24,304
Real estate - construction 8,439 13,117 13,612 3,756 3,886
Real estate - mortgage, farmland 56,595 55,245 52,978 48,411 42,458
Real estate - mortgage, 123,854 108,339 89,708 61,806 50,461
commercial
Real estate - mortgage, 114,930 127,767 121,448 74,671 69,129
residential
Consumer instalment loans 65,307 68,959 67,572 58,615 53,419
Other 1,220 2,764 2,229 1,465 1,733
---------- ---------- ---------- --------- ---------
477,194 490,244 452,844 319,471 285,575
Less reserve for possible loan
losses 10,192 7,627 7,273 5,890 5,168
---------- ---------- ---------- --------- ---------
Loans, net $ 467,002 $ 482,617 $ 445,571 $ 313,581 $ 280,407
========== ========== ========== ========== =========
</TABLE>
Maturities and Sensitivity to Changes in Interest Rates
Total loans as of December 31, 1998 are shown in the following table
according to maturity or repricing opportunities (1) one year or less, (2) after
one year through three years, and (3) after three years.
<TABLE>
<CAPTION>
(Dollars in
Thousands )
--------------
<S> <C>
Maturity or Repricing Within:
One year or less $ 263,341
After one year through three years 121,801
After three years 92,052
--------------
$ 477,194
==============
</TABLE>
40
<PAGE>
The following table summarizes loans at December 31, 1998 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 $ 211,204
Floating or adjustable interest rates 2,649
---------
$ 213,853
=========
</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,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------------------------- ---------- ---------- ---------
(Dollars in Thousands)
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis $ 8,767 $ 10,101 $ 4,977 $ 2,271 $ 3,518
Instalment loans and term loans contractually 94 59 397 457 274
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 terms
</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.
41
<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 $10,192,000 at December
31, 1998, representing 2.14% of year end total loans outstanding, compared with
$7,627,000 at December 31, 1997, which represented 1.56% 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,
--------------------------------------------------------------------------
1998 1997 1996
------------------------ ----------------------- ---------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
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 $ 3,047 22% $ 1,792 23% $ 1,661 23%
Real estate 3,404 64 3,274 62 2,928 62
Consumer 1,906 14 1,112 15 1,446 15
Unallocated 1,835 - 1,449 - 1,238 -
-------- ------ -------- ------ ------- ------
$ 10,192 100% $ 7,627 100% $ 7,273 100%
======== ====== ======== ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
-----------------------
1995
-----------------------
Percent of
Loans in
Category
to Total
Amount Loans
-------- ----------
<S> <C> <C>
Commercial, financial,
industrial and agricultural $ 1,364 22%
Real estate 2,032 59
Consumer 1,206 19
Unallocated 1,288 -
------- ------
$ 5,890 100%
======= ======
</TABLE>
<PAGE>
The following table presents an analysis of the Company's loan loss
experience for the periods indicated:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $495,421 $475,047 $395,822 $308,405 $271,970
======== ======== ======== ======== ========
Balance of reserve for possible loan
losses at beginning of period $ 7,627 $ 7,273 $ 5,890 $ 5,169 $ 4,889
-------- -------- -------- -------- --------
Charge-offs:
Commercial, financial and
agricultural (1,456) (759) (768) (309) (479)
Real estate (1,252) (1,981) (1,242) (108) (338)
Consumer (1,322) (383) (279) (573) (481)
Recoveries:
Commercial, financial and
agricultural 276 168 89 116 100
Real estate 365 512 275 128 265
Consumer 449 66 178 226 225
-------- -------- -------- -------- --------
Net charge-offs (2,940) (2,377) (1,747) (520) (708)
-------- -------- -------- -------- --------
Additions to reserve charged to
operating expenses 5,505 2,731 1,919 1,241 988
-------- -------- -------- -------- --------
Allowance for loan losses of
acquired subsidiary - - 1,211 - -
-------- -------- -------- -------- --------
Balance of reserve for
possible
loan losses $ 10,192 $ 7,627 $ 7,273 $ 5,890 $ 5,169
======== ======== ======== ======== ========
Ratio of net loan charge-offs
to average loans .59% .50% .44% .17% .26%
======== ======== ======== ======== ========
</TABLE>
43
<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,
---------------------------------------------------
1998 1997
------------------------ ------------------------
Amount Rate Amount Rate
------------ ---------- ------------- ----------
(Dollars in Thousands)
---------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 83,770 - % $ 78,481 - %
Interest-bearing demand and savings 174,443 3.12 166,877 3.05
deposits
Time deposits 348,826 5.73 330,621 5.79
----------- ----------
Total deposits $ 607,039 $ 575,979
=========== ==========
</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, 1998, 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 $ 29,246
Over three through twelve months 54,397
Over twelve months 9,738
------------
Total $ 93,381
============
</TABLE>
44
<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,
------------------------
1998 1997 1996
-------- ----- -----
<S> <C> <C> <C>
Return on assets (1) 0.99% 1.10% 1.21%
Return on equity (2) 10.07 11.35 12.19
Dividends payout ratio (3) 42.11 36.89 31.68
Equity to assets ratio (4) 9.81 9.70 9.95
</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, 1998, the Subsidiary Banks' short-term investments were adequate
to cover any reasonable anticipated immediate need for funds. During 1998, ABC
increased its capital by retaining net earnings of $4,016,000 after payment of
dividends. After recording an increase in capital of $80,000 for unrealized
gains on securities available for sale, net of taxes, and a decrease in capital
of $415,000 for repurchase of treasury shares, total capital increased
$3,681,000 during 1998. At December 31, 1998, total capital of ABC amounted to
$71,834,000. ABC and the Subsidiary Banks are aware of no events or trends
likely to result in a material change in their liquidity.
45
<PAGE>
Liquidity and Capital Resources (Continued)
At December 31, 1998, ABC had binding commitments for capital
expenditures of approximately $238,000. In addition, management estimates that
approximately $1,250,000 will be required for completion of banking facilities
in 1999.
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, 1998.
<TABLE>
<CAPTION>
Actual Required Excess
----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital $62,637 8.95% $27,994 4.00% $34,643 4.95%
Risk-based capital:
Core capital 62,637 13.41 18,681 4.00 43,956 9.41
Total capital 68,529 14.67 37,361 8.00 31,168 6.67
</TABLE>
Each Bank also met its individual regulatory capital requirements at
December 31, 1998.
Year 2000 Issue
ABC has initiated a company-wide program to identify and address
issues associated with the ability of its information, computer, telephone,
business system and certain other date-sensitive equipment to properly recognize
the year 2000 as a result of the century date change on January 1, 2000. The
program is also designed to assess the readiness of other entities with which
ABC does business.
Inability by ABC to reach year 2000 compliance in its systems and
integral third-party systems could result in the interruption of
telecommunications services, failure of operating and other information systems
and failure of certain date-sensitive equipment. Such failures could interrupt
ABC's ability to service its customers accurately and timely and, thus, could
result in substantial loss of revenue and increased expenses associated with
litigating customer claims, stabilizing operations and executing contingency
plans.
ABC's Year 2000 Program is being conducted by a management team that
is coordinating the efforts of internal resources as well as third party
providers and vendors in identifying and making corrective changes or replacing
date-sensitive software and equipment. The program encompasses ABC and its
subsidiaries. Some of the changes that are necessary in ABC's operations are
being made as a part of ongoing systems upgrades.
46
<PAGE>
Year 2000 Issue (Continued)
The Year 2000 Program is divided into five phases: awareness;
assessment; renovation; validation; and implementation. Using these five
phases, ABC measures the progress in four focus areas: mission critical; mission
necessary; mission desirable and mission unnecessary.
Mission critical applications include those that (1) directly affect
delivery of primary services to customers; (2) directly affect ABC revenue
recognition and collection; (3) create noncompliance with any statutes or laws;
or (4) require significant costs to address in the event of noncompliance.
Management's target date for completion of all phases for its mission critical
applications is June 30, 1999. As of January 31, 1999, the awareness,
assessment, renovation and validation phases of mission critical applications
were approximately 95% complete, and the implementation phase was approximately
75% complete.
The second focus area, mission necessary, consists of hardware,
software and vendor relationships that, while important to day-to-day
operations, do not pose a significant threat to the ability to service
-----------
customers. As of January 31, 1999, the awareness, assessment and renovation,
and validation phases of mission necessary applications were approximately 90%
complete, and the implementation phase was approximately 60% complete.
The third focus area, mission desirable, consists of hardware,
software and vendor relationships that pose no threat to the ability to service
--
customers. Without these systems, however, ABC's employees would need to make
inefficient modifications to the way they perform day-to-day duties. As of
January 31, 1999, the awareness, assessment and renovation and validation phases
of mission desirable systems were approximately 85% complete, and implementation
was approximately 50% complete.
The fourth focus area, mission unnecessary, consists of hardware,
software and vendor relationships that pose no threat to customer service or
day-to-day operations. As of January 31, 1999, the awareness, assessment,
renovation and validation phases of mission unnecessary systems were
approximately 85% complete, and implementation was approximately 25% complete.
In addition to the above, ABC will complete a review of all of its
subject loan relationships, and assess the need to increase loan loss reserves
to compensate for perceived risk of borrowers to achieve Year 2000 compliance.
As of January 31, 1999, the review process was 100% complete and the loan loss
reserve assessments approximately 25% complete.
ABC has recently contracted with a third party to provide consulting
services relative to the development and testing of a Year 2000 contingency plan
as well as disaster recovery and business continuity plans for ABC and
subsidiary bank operations. It is anticipated that the Year 2000 contingency
plan will be completed and tested prior to June 30, 1999.
Expenses associated with ABC's Year 2000 compliance efforts for fiscal
year 1998 were approximately $300,000. Expenses projected for 1999 are
approximately $350,000. Additionally, ABC estimates that the total cost of its
capital investments will be between $1.0 million and $1.5 million over the life
of the project. ABC intends to continually reassess the estimated costs and
status of Year 2000 compliance efforts.
47
<PAGE>
Year 2000 Issue (Continued)
ABC currently anticipates that its mission critical applications will
be Year 2000 compliant by June 30, 1999. However, no assurance can be given
that unforeseen circumstances will not arise during the performance of the
testing and implementation phases that would adversely affect the Year 2000
compliance of ABC's systems. Furthermore, the Year 2000 compliance status of
integral third party suppliers and networks, which could aversely impact ABC's
mission critical applications, cannot be fully known. As a result, ABC is
unable to determine the impact that any system interruption would have on its
results of operations, financial position and cash flows. However, such impact
could be material.
Commitments and Lines of Credit
In the ordinary course of business, the Banks have granted commitments
to extend credit to approved customers. Generally, these commitments to extend
credit have been granted on a temporary basis for seasonal or inventory
requirements and have been approved by the Banks' Board of Directors. The Banks
have also granted commitments to approved customers for standby letters of
credit. These commitments are recorded in the financial statements when funds
are disbursed or the financial instruments become payable. The Banks use the
same credit policies for these off balance sheet commitments as they do for
financial instruments that are recorded in the consolidated financial
statements. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitment amounts expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
Following is a summary of the commitments outstanding at December 31,
1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(Dollars in Thousands)
----------------------
<S> <C> <C>
Commitments to extend credit $ 80,861 $ 81,682
Credit card commitments 7,866 7,153
Standby letters of credit 2,761 1,584
-------- --------
$ 91,488 $ 90,419
-------- --------
</TABLE>
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.
48
<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-41 of this Annual Report on
Form 10-K:
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Income - Years ended December 31, 1998, 1997 and
1996
Consolidated Statements of Comprehensive Income - Years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity - Years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Cash Flows - Years ended December 31, 1998, 1997
and 1996
Notes to Consolidated Financial Statements.
ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE
During 1998 and 1997, 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.
49
<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.
50
<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, 1998 and
1997
(ii) Consolidated Statements of Income - Years ended
December 31, 1998, 1997 and 1996
(iii) Consolidated Statements of Comprehensive Income -
Years ended December 31, 1998, 1997 and 1996
(iv) Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1998, 1997 and 1996
(v) Consolidated Statements of Cash Flows - Years
ended December 31, 1998, 1997 and 1996
(vi) Notes to Consolidated Financial Statements
(b) ABC Bancorp (Parent Company Only):
Parent Company only financial information has been
included in Note 18 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 .
51
<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.
3.5 Form of Articles of Amendment to the Articles of
Incorporation (incorporated by reference to Exhibit
3.5 to ABC's Annual Report on Form 10-K (File No. 001-
13901), filed with the Commission on March 25, 1998).
3.6 Form of Amendment to Bylaws (incorporated by reference
to Exhibit 3.6 to ABC's Annual Report on Form 10-K
(File No. 001-13901), filed with the Commission on
March 25, 1998).
3.7 Form of Articles of Amendment to the Articles of
Incorporation filed electronically herewith.
3.8 Form of Amendment to Bylaws filed electronically
herewith.
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).
52
<PAGE>
Exhibit No Description
------------- ------------------------------------------------------
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).
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).
53
<PAGE>
Exhibit No Description
------------- ------------------------------------------------------
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).
10.15 Form of Purchase and Assumption Agreement by and
between NationsBank, N.A. (South) and ABC Bancorp
dated as of February 26, 1997 (incorporated by
reference to Exhibit 10.15 to ABC's Annual Report on
Form 10-K (File No. 001-13981), filed with the
Commission on March 25, 1998).
10.16 Form of Agreement and Plan of Merger by and between
ABC Bancorp and Irwin Bankcorp, Inc. dated as of May
15, 1997 (incorporated by reference to Exhibit 10.16
to ABC's Annual Report on Form 10-K (File No. 001-
13901) filed with the Commission on March 25, 1998).
10.17 Form of Omnibus Stock Ownership and Long-Term
Incentive Plan (incorporated by reference to Exhibit
10.17 to ABC's Annual Report on Form 10-K (File No.
001-13901), filed with the Commission on March 25,
1998).
10.18 Form of Rights Agreement between ABC Bancorp and
SunTrust Bank dated as of February 17, 1998
(incorporated by reference to Exhibit 10.18 to ABC's
Annual Report on Form 10-K (File No. 001-13901), filed
with the Commission on March 25, 1998).
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.
54
<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.
<TABLE>
<CAPTION>
<S> <C>
ABC BANCORP
Date: 3/16/99 By: /s/ Kenneth J. Hunnicutt
------------ -------------------------------------------------------------------------
Kenneth J. Hunnicutt, President, Chief Executive Officer and Director
Date: 3/16/99 By: /s/ W. Edwin Lane, Jr.
------------ -------------------------------------------------------------------------
W. Edwin Lane, Jr., Executive Vice President and Chief Financial Officer
</TABLE>
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.
<TABLE>
<CAPTION>
<S> <C>
Date: 3/16/99 /s/ Kenneth J. Hunnicutt
------------ -------------------------------------------------------------------------
Kenneth J. Hunnicutt, President, Chief Executive Officer and Director
Date: 3/16/99 /s/ W. Edwin Lane, Jr.
------------ -------------------------------------------------------------------------
W. Edwin Lane, Jr., Executive Vice President and Chief Financial Officer
Date: 3/16/99 _________________________________________________________________________
------------ Johnny W. Floyd, Director
Date: 3/16/99 /s/ J. Raymond Fulp
------------ -------------------------------------------------------------------------
J. Raymond Fulp, Director
Date: 3/16/99 /s/ Daniel B. Jeter
------------ -------------------------------------------------------------------------
Daniel B. Jeter, Director
</TABLE>
55
<PAGE>
<TABLE>
<S> <C>
/s/ Bobby B. Lindsey
Date: 3/16/99 -------------------------------------------------------------------------
------------ Bobby B. Lindsey, Director
/s/ Hal L. Lynch
Date: 3/16/99 -------------------------------------------------------------------------
------------ Hal L. Lynch, Director
/s/ Eugene M. Vereen
Date: 3/16/99 -------------------------------------------------------------------------
------------ Eugene M. Vereen, Jr., Director
/s/ Doyle Weltzbarker
Date: 3/16/99 -------------------------------------------------------------------------
------------ Doyle Weltzbarker, Director and Chairman of the Board
/s/ Henry Wortman
Date: 3/16/99 -------------------------------------------------------------------------
------------ Henry Wortman, Director
</TABLE>
56
<PAGE>
ABC BANCORP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Consolidated financial statements:
Independent Auditor's Report
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Income - Years ended December 31, 1998, 1997 and
1996
Consolidated Statements of Comprehensive Income - Years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity - Years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Cash Flows - Years ended December 31, 1998, 1997
and 1996
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, 1998 and 1997, and the related
consolidated statements of income, comprehensive income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of ABC
Bancorp and Subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Mauldin & Jenkins, LLC
Albany, Georgia
January 22, 1999
F-2
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Assets 1998 1997
- ------ ----- ------
<S> <C> <C>
Cash and due from banks $ 42,058 $ 33,973
Interest-bearing deposits in banks 14,417 2,288
Federal funds sold 0 890
Securities available for sale, at fair value 135,933 93,199
Securities held to maturity, at cost (fair value $19,325 and $30,577) 18,613 30,020
Loans 477,194 490,244
Less allowance for loan losses 10,192 7,627
-------- --------
Loans, net 467,002 482,617
-------- --------
Premises and equipment, net 19,088 19,054
Excess of cost over net assets of banks acquired 8,440 9,291
Other assets 19,395 20,554
-------- --------
$724,946 $691,886
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits
Noninterest-bearing demand $ 99,957 $ 90,109
Interest-bearing demand 132,527 128,294
Savings 59,719 46,715
Time, $100,000 and over 93,381 85,937
Other time 247,741 249,656
-------- --------
Total deposits 633,325 600,711
Federal funds purchased and securities sold under agreements to repurchase 883 660
Other borrowings 11,850 15,400
Other liabilities 7,054 6,962
-------- --------
Total liabilities 653,112 623,733
-------- --------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $1; 15,000,000 shares authorized,
7,524,718 shares issued 7,525 7,525
Capital surplus 29,677 29,677
Retained earnings 36,280 32,264
Accumulated other comprehensive income 322 242
-------- --------
73,804 69,708
Less cost of shares acquired for the treasury, 305,153 and (1,970) (1,555)
-------- --------
272,353 shares Total stockholders' equity 71,834 68,153
-------- --------
$724,946 $691,886
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 51,584 $ 50,502 $ 42,322
Interest on taxable securities 5,990 6,511 6,092
Interest on nontaxable securities 1,190 1,205 1,025
Interest on deposits in other banks 1,077 232 8
Interest on Federal funds sold 53 199 1,139
-------- -------- --------
59,894 58,649 50,586
-------- -------- --------
Interest expense
Interest on deposits 25,411 24,229 20,935
Interest on other borrowings 1,033 1,721 1,389
-------- -------- --------
26,444 25,950 22,324
-------- -------- --------
Net interest income 33,450 32,699 28,262
Provision for loan losses 5,505 2,731 1,919
-------- -------- --------
Net interest income after provision for
loan losses 27,945 29,968 26,343
-------- -------- --------
Other income
Service charges on deposit accounts 5,720 5,509 4,722
Other service charges, commissions and fees 506 474 500
Mortgage origination fees 883 445 167
Non-taxable life insurance benefits 1,200 0 24
Gain (loss) on sale of securities 0 -22 -5
Other 1,390 1,330 1,124
-------- -------- --------
9,699 7,736 6,532
-------- -------- --------
Other expenses
Salaries and employee benefits 14,025 13,742 11,354
Equipment expense 2,442 2,305 1,783
Occupancy expense 1,878 1,653 1,380
Merger and acquisition expense 4 406 708
Amortization of intangible assets 851 744 487
Data processing fees 774 528 586
Stationary and supplies expense 476 560 616
Other operating expenses 7,546 7,201 5,964
-------- -------- --------
27,996 27,139 22,878
-------- -------- --------
Income before income taxes 9,648 10,565 9,997
Applicable income taxes 2,735 3,119 2,839
-------- -------- --------
Net income $ 6,913 $ 7,446 $ 7,158
-------- -------- --------
Income per common share - Basic $ 0.95 $ 1.03 $ 1.01
-------- -------- --------
Income per common share - Diluted $ 0.95 $ 1.02 $ 1.01
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Net income $ 6,913 $ 7,446 $ 7,158
------- ------- -------
Other comprehensive income:
Net unrealized holding gains (losses) arising
during period, net of tax of $32, $152 and
$(123) 80 284 (238)
Reclassification adjustment for losses
included in net income, net of
tax of $ - -, $7 and $2 - 15 3
------- ------- -------
Total other comprehensive income 80 299 (235)
------- ------- -------
Comprehensive income $ 6,993 $ 7,745 $ 6,923
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Other Treasury Stock
-------------------- Capital Retained Comprehensive ------------------
Shares Par Value Surplus Earnings Income Shares Cost Total
--------- ------- -------- --------- ------------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 5,567,209 $ 5,567 $ 25,314 $ 22,255 $ 374 217,882 $ (1,555) $ 51,955
Net income - - - 7,158 - - - 7,158
Cash dividends declared, $.32 per share - - - (1,682) - - - (1,682)
Cash dividends paid by pooled subsidiary - - - (248) - - - (248)
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 treasury stock transactions
of pooled subsidiary - - 26 - - - - 26
Other comprehensive income - - - - (235) - - (235)
---------- ------- -------- --------- ------------- ------- -------- -------
Balance, December 31, 1996 6,114,443 6,114 30,985 27,483 (57) 217,882 (1,555) 62,970
Net income - - - 7,446 - - - 7,446
Cash dividends declared, $.38 per share - - - (2,665) - - - (2,665)
Five-for-four common stock split 1,403,241 1,403 (1,403) - - 54,471 - -
Exercise of options by shareholders
of pooled subsidiaries 7,034 8 102 - - - - 110
Purchase of fractional shares - - (7) - - - - (7)
Other comprehensive income - - - - 299 - - 299
---------- ------- -------- --------- ------------- ------- -------- -------
Balance, December 31, 1997 7,524,718 7,525 29,677 32,264 242 272,353 (1,555) 68,153
Net income - - - 6,913 - - - 6,913
Cash dividends declared, $.40 per share - - - (2,897) - - - (2,897)
Net treasury stock transactions - - - - - 32,800 (415) (415)
Other comprehensive income - - - - 80 - - 80
---------- ------- -------- --------- ------------- ------- -------- -------
Balance, December 31, 1998 7,524,718 $ 7,525 $ 29,677 $ 36,280 $ 322 305,153 $ (1,970) $ 71,834
========== ======= ========= ========= ============= ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,913 $ 7,446 $ 7,158
------------- ------------- -------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,143 2,000 1,576
Amortization of intangible assets 851 744 487
Net losses on securities available for sale - 22 5
Net gains on sale of premises and equipment (188) - -
Gain from life insurance benefits (1,200) - -
Provision for loan losses 5,505 2,731 1,919
Provision for deferred taxes (1,170) (449) (382)
(Increase) decrease in interest receivable 1,271 (1,435) (513)
Increase (decrease) in interest payable (38) 56 (113)
Increase (decrease) in taxes payable (485) 463 (528)
Other prepaids, deferrals and accruals, net 891 (2,048) 1,499
------------- ------------- -------------
Total adjustments 7,580 2,084 3,950
------------- ------------- -------------
Net cash provided by operating activities 14,493 9,530 11,108
------------- ------------- -------------
INVESTING ACTIVITIES
(Increase) decrease in interest-bearing
deposits in banks (12,129) (2,288) 199
Purchases of securities available for sale (110,362) (48,972) (45,123)
Purchases of securities held to maturity (400) (6,102) (2,871)
Proceeds from maturities of securities
available for sale 67,708 48,633 31,064
Proceeds from sale of securities available for sale - 10,851 4,638
Proceeds from maturities of securities held
to maturity 11,807 8,072 1,894
Decrease in Federal funds sold 890 7,730 48,235
(Increase) decrease in loans, net 10,110 (32,550) (53,968)
Net cash paid for purchased subsidiary - - (3,947)
Net cash received from acquisition of deposits - 16,398 -
Purchase of premises and equipment (2,383) (4,598) (3,728)
Proceeds from the sale of premises and equipment 708 - 48
Proceeds from life insurance benefits 1,671 - -
------------- ------------- -------------
Net cash used in investing activities (32,380) (2,826) (23,559)
------------- ------------- -------------
</TABLE>
F-7
<PAGE>
ABC BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Increase (decrease) in deposits $32,614 $(3,965) $20,092
Increase (decrease) in Federal funds purchased and
securities sold under agreements to repurchase 223 (337) (2,690)
Proceeds from other borrowings 5,500 34,678 12,600
Repayment of other borrowings (9,050) (43,478) (5,200)
Dividends paid (2,900) (2,633) (1,763)
Proceeds from sale of stock of pooled subsidiary - 110 324
Purchase of fractional shares - (7) (7)
Purchase of treasury shares (415) - (44)
------- ------- -------
Net cash provided by (used in)
financing activities 25,972 (15,632) 23,312
------- ------- -------
Net (decrease) increase in cash and due from banks 8,085 (8,928) 10,861
Cash and due from banks at beginning of year 33,973 42,901 32,040
------- ------- -------
Cash and due from banks at end of year $42,058 $33,973 $42,901
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $26,482 $25,894 $22,437
Income taxes $ 4,390 $ 3,105 $ 3,749
NONCASH TRANSACTION
Net change in unrealized gains (losses)
on securities available for sale $ 94 $ 471 $ (340)
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
ABC BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 financial statements include the
accounts of the Company and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated in
consolidation. Results of operations of purchased banks are
included from the dates of acquisition. Following the purchase
method of accounting, the assets and liabilities of purchased
banks are stated at estimated fair values at the date of
acquisition.
The principles which significantly affect the determination of
financial position, results of operations and cash flows are
summarized below.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including cash
items in process of clearing). Cash flows from loans originated
by the Banks, deposits, interest-bearing deposits and Federal
funds purchased and sold are reported net.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced
any losses in such accounts.
F-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:
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Buildings and improvements 15-40
Furniture and equipment 5-7
</TABLE>
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 and the Douglas branch of
Citizens Security Bank acquired in 1997 are 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
Basic earnings per share are calculated on the basis of the
weighted average number of common shares outstanding. Diluted
earnings per share are computed by dividing net income by the sum
of the weighted average number of common shares outstanding and
potential common shares. Earnings per common share for the prior
periods have been restated to reflect the adoption of FASB 128.
All per share data for prior years have been adjusted to reflect
the five-for-four stock split effected in the form of a 25% stock
dividend to shareholders of record as of April 15, 1997.
Recent Accounting Pronouncements
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive
Income". This statement establishes standards for reporting and
display of comprehensive income and its components in the
financial statements. This statement requires that all items that
are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed in equal prominence with the other
financial statements. The Company has elected to report
comprehensive income in a separate financial statement titled
"Consolidated Statements of Comprehensive Income". SFAS No. 130
describes comprehensive income as the total of all components of
comprehensive income, including net income. This statement uses
other comprehensive income to refer to revenues, expenses, gains
and losses that under generally accepted accounting principles
are included in comprehensive income but excluded from net
income. Currently, the Company's other comprehensive income
consists of items previously reported directly in equity under
SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". As required by SFAS No. 130, the financial
statements for the prior year have been reclassified to reflect
application of the provisions of this statement. The adoption of
this statement did not affect the Company's financial position,
results of operations or cash flows.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS No.
133"), "Accounting for Derivative Instruments and Hedging
Activities". This statement is required to be adopted for fiscal
years beginning after June 15, 1999. However, the statement
permits early adoption as of the beginning of any fiscal quarter
after its issuance. The Company expects to adopt this statement
effective January 1, 2000. SFAS 133 requires the Company to
recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. For derivatives that are not
designated as hedges, the gain or loss must be recognized in
earnings in the period of change. For derivatives that are
designated as hedges, changes in the fair value of the hedged
assets, liabilities, or firm commitments must be recognized in
earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings, depending on the nature of
the hedge. The ineffective portion of a derivative's change in
fair value must be recognized in earnings immediately.
Management has not yet determined what effect the adoption of
SFAS 133 will have on the Company's earnings or financial
position.
NOTE 2. ACQUISITIONS
During the three-year period ended December 31, 1998, the Company
consummated the following acquisitions:
<TABLE>
<CAPTION>
Accounting Resulting
Date Entity Method Consideration Intangibles
- ---------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
June 1996 Southland Bank Purchase $5,880,000 in cash $5,310,000
and 402,271 shares
of Company stock
July 1996 Central Bank & Pooling of interests 524,300 shares of None
Trust Company stock
August 1996 First National Pooling of interests 725,772 shares of None
Bank of Company stock
South Georgia
December 1996 Merchants & Pooling of interests 365,026 shares of None
Farmers Bank Company stock
August 1997 The Bank of Ocilla Pooling of interests 507,034 shares of None
Company stock
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENTS IN SECURITIES
The amortized cost and approximate fair values of investments in
securities at December 31, 1998 and 1997 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, 1998:
U. S. Government and agency $ 65,146 $ 278 $ (16) $ 65,408
securities
Mortgage-backed securities 63,677 198 (180) 63,695
State and municipal securities 6,097 273 - 6,370
Other securities 525 - (65) 460
-------- ------- -------- --------
$135,445 $ 749 $ (261) $135,933
======== ======= ======== ========
December 31, 1997:
U. S. Government and agency $ 79,636 $ 287 $ (101) $ 79,822
securities
Mortgage-backed securities 6,984 120 (19) 7,085
State and municipal securities 5,660 174 - 5,834
Other securities 525 - (67) 458
-------- ------- -------- --------
$ 92,805 $ 581 $ (187) $ 93,199
======== ======= ======== ========
Securities Held to Maturity
December 31, 1998:
U. S. Government and agency $ 999 $ 2 $ - $ 1,001
securities
Mortgage-backed securities 1,662 25 - 1,687
State and municipal securities 15,952 686 (1) 16,637
-------- ------- -------- --------
$ 18,613 $ 713 $ (1) $ 19,325
======== ======= ======== ========
December 31, 1997:
U. S. Government and agency $ 8,995 $ 1 $ (10) $ 8,986
securities
Mortgage-backed securities 2,951 27 (10) 2,968
State and municipal securities 18,074 557 (8) 18,623
-------- ------- -------- --------
$ 30,020 $ 585 $ (28) $ 30,577
======== ======= ======== ========
</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,
1998 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 $ 7,819 $ 7,837 $ 1,433 $ 1,442
Due from one year to five years 57,962 58,253 9,061 9,330
Due from five to ten years 3,683 3,810 4,792 5,083
Due after ten years 1,779 1,878 1,665 1,783
Mortgage-backed securities 63,677 63,695 1,662 1,687
Marketable equity securities 525 460 - -
----------- ----------- ---------- ----------
$ 135,445 $ 135,933 $ 18,613 $ 19,325
=========== =========== ========== ==========
</TABLE>
Securities with a carrying value of $59,332,000 and $69,033,000 at
December 31, 1998 and 1997, 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,
-----------------------------------------
1998 1997 1996
-----------------------------------------
(Dollars in Thousands)
-----------------------------------------
<S> <C> <C> <C>
Gross gains on sales of securities $ - $ 26 $ 13
Gross losses on sales of securities - (48) (18)
-------- -------- --------
Net realized gains (losses) on sales of
securities available for sale $ - $ (22) $ (5)
======== ======== =======
</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,
----------------------------
1998 1997
---------------------------
(Dollars in Thousands)
---------------------------
<S> <C> <C>
Commercial and financial $ 70,282 $ 72,171
Agricultural 36,567 41,882
Real estate - construction 8,439 13,117
Real estate - mortgage, farmland 56,595 55,245
Real estate - mortgage, commercial 123,854 108,339
Real estate - mortgage, residential 114,930 127,767
Consumer instalment loans 65,307 68,959
Other 1,220 2,764
----------- -----------
477,194 490,244
Allowance for loan losses 10,192 7,627
----------- -----------
$ 467,002 $ 482,617
=========== ===========
</TABLE>
The total recorded investment in impaired loans was $8,767,000 and
$10,054,000 at December 31, 1998 and 1997, respectively. Included in
these loans were $8,767,000 and $5,680,000 that had related allowances
for loan losses of $1,846,000 and $1,060,000 at December 31, 1998 and
1997, respectively. The average recorded investment in impaired loans
for 1998 and 1997 was $12,730,000 and $7,686,000, respectively.
Interest income on impaired loans of $160,000 and $383,000 was
recognized for cash payments received for the years ended 1998 and
1997, 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, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
<S> <C> <C> <C> <C> <C>
1998 1997
-----------------------------
(Dollars in Thousands)
-----------------------------
Balance, beginning of year $ 23,642 $ 21,235
Advances 15,742 18,708
Repayments (17,935) (14,593)
Transactions due to change(s) in related parties (2,093) (1,708)
-----------------------------
Balance, end of year $ 19,356 $ 23,642
=============================
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
-----------------------------------------
Balance, beginning of year $ 7,627 $ 7,273 $ 5,890
Allowance for loan losses of acquired subsidiary - - 1,211
Provision charged to operations 5,505 2,731 1,919
Loans charged off (4,030) (3,338) (2,291)
Recoveries 1,090 961 544
-----------------------------------------
Balance, end of year $ 10,192 $ 7,627 $ 7,273
=========================================
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. PREMISES AND EQUIPMENT, NET
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
--------------------------
<S> <C> <C>
(Dollars in Thousands)
--------------------------
Land $ 4,454 $ 4,535
Buildings 14,644 13,761
Equipment 15,182 14,291
Construction in progress 910 649
---------- ----------
35,190 33,236
Accumulated depreciation 16,102 14,182
---------- ----------
$ 19,088 $ 19,054
========== ==========
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997 and
1996 was $2,122,000, $1,923,000 and $1,465,000, respectively.
NOTE 6. Employee Benefit Plans
Prior to 1998, the Company and its subsidiaries maintained simplified
employee pension plans for substantially all employees. These plans
were SEP-IRA defined contribution plans. Contributions to these plans
charged to expense during 1997 and 1996 amounted to $1,093,000 and
$879,000, respectively.
Effective January 1, 1998, the Company established two retirement
plans to replace the simplified employee pension plans. The ABC
Bancorp 401(k) Profit Sharing Plan allows a participant to defer a
portion of his compensation and provides that the Company will match a
portion of the deferred compensation. The plan also provides for
nonelective and discretionary contributions to be made at the sole
discretion of the Company. The ABC Bancorp Money Purchase Pension Plan
was established to supplement a participant's income upon retirement.
The Plan is fully funded by the Company. The Plan provides for a fixed
rate of contribution, currently 5%, of the participant's eligible
compensation. The rate of contribution is established by the
Compensation Committee of ABC Bancorp's Board of Directors. The Plan
must be amended to change the fixed rate of 5% established by the
Compensation Committee in December 1997. All full-time and part-time
employees are eligible to participate in both plans provided they have
met the eligibility requirements. Generally, a participant must have
completed twelve months of employment with a minimum of 1,000 hours.
Aggregate expense under the two plans charged to operations in 1998
amounted to $644,000.
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 $78,000, $70,000 and $12,000
for 1998, 1997 and 1996, respectively, and is included in other
operating expenses.
NOTE 8. STOCK OPTION PLANS
the Company has two fixed stock option plans under which it has
granted options to its Chief Executive Officer to purchase common
stock at the fair market price on the date of grant. All of the
options are intended to be incentive stock options qualifying under
Section 422 of the Internal Revenue Code for favorable tax treatment.
Under the 1992 Plan, options to purchase 8,334 shares were granted.
None of these options have been exercised, however, all of the options
were exercisable as of December 31, 1998. Options under the 1992 Plan
expire in 2002. Under the 1997 Plan, options to purchase 56,250 shares
were granted. Options under the 1997 Plan are fully vested and are
exercisable over a period of ten years subject to certain limitations
as to aggregate fair market value (determined as of the date of the
grant) of all options exercisable for the first time by the optionee
during any calendar year (the "$100,000 Per-Year Limitation"). Under
the 1997 Plan, options to purchase 13,875 shares were exercisable as
of December 31, 1998.
At the annual meeting on April 15, 1997, the shareholders approved the
ABC Bancorp Omnibus Stock Ownership and Long-Term Incentive Plan (the
"Omnibus Plan"). Awards granted under the Omnibus Plan may be in the
form of Qualified or Nonqualified Stock Options, Restricted Stock,
Stock Appreciation Rights ("SARS"), Long-Term Incentive Compensation
Units consisting of a combination of cash and Common Stock, or any
combination thereof within the limitations set forth in the Omnibus
Plan. The Omnibus Plan provides that the aggregate number of shares of
the Company's Common Stock which may be subject to award may not
exceed 531,250, subject to adjustment in certain circumstances to
prevent dilution. As of December 31, 1998, options to purchase 32,842
shares of the Company's common stock have been granted under the
Omnibus Plan.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. STOCK OPTION PLANS (Continued)
A summary of the status of the three fixed plans at December 31, 1998,
1997 and 1996 and changes during the years ended on those dates is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ----------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
--------- ----------- --------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Under option, beginning
of the year 64,584 $12.54 8,334 $ 5.40 8,334 $ 5.40
Granted 35,228 18.79 56,250 13.60 - -
Exercised - - - - - -
Forfeited (2,386) 18.68 - - - -
------- ------ -----
Under option, end of year 97,426 14.65 64,584 12.54 8,334 5.40
======= ====== =====
Exercisable at end of year 22,209 14,959 6,668
======= ====== =====
Weighted-average fair value
per option of options
granted during year $ 4.10 $ 4.11 $ -
======= ====== =====
</TABLE>
A further summary about options outstanding at December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------
Weighted- Weighted- Weighted-
Range of Average Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life in Years Price Outstanding Price
------------- ------------- --------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
$ 5.40 8,334 4.0 $ 5.40 8,334 $ 5.40
13.60 56,250 8.3 13.60 13,875 13.60
19.13 27,842 9.0 19.13 - -
17.00 5,000 9.3 17.00 - -
------ ------
97,426 8.18 14.65 22,209 10.52
====== ======
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. STOCK OPTION PLANS (Continued)
As permitted by Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), the Company
recognizes compensation cost for stock-based employee compensation
awards in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees". The Company recognized no compensation cost for
stock-based employee compensation awards for the years ended December
31, 1998, 1997 and 1996. If the Company had recognized compensation
cost in accordance with SFAS No. 123, net income and net income per
share would have been reduced as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- ---------------------------- ---------------------
Basic Basic Basic
Net Net Income Net Net Income Net Net Income
Income Per Share Income Per Share Income Per Share
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
As reported $6,913 $0.95 $7,446 $1.03 $7,158 $1.01
Stock based
compensation,
net of related
tax effect (18) - (153) (0.02) - -
------- ------ ------- ------ ------- ------
As adjusted $6,895 $0.95 $7,293 $1.01 $7,158 $1.01
======= ====== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- ---------------------------- ---------------------
Diluted Diluted Diluted
Net Net Income Net Net Income Net Net Income
Income Per Share Income Per Share Income Per Share
--------------------------- ---------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
As reported $6,913 $0.95 $7,446 $1.02 $7,158 $1.01
Stock based
compensation,
net of related
tax effect (18) - (153) (0.02) - -
------- ------ ------- ------ ------- ------
As adjusted $6,895 $0.95 $7,293 $1.00 $7,158 $1.01
======= ====== ======= ====== ======= ======
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. STOCK OPTION PLANS (Continued)
The fair value of the options granted in 1998 was based upon the
discounted value of future cash flows of the options using the
following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate 5.12%
Expected life of the options 10 years
Expected dividends (as a percent of the fair value of the stock) 3.17%
Expected volatility 17.70%
</TABLE>
NOTE 9. DEPOSITS
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
<TABLE>
<CAPTION>
(Dollars in
Thousands)
--------------
<S> <C>
1999 $ 285,608
2000 30,639
2001 13,426
2002 4,797
2003 5,836
Later years 816
---------
$ 341,122
=========
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
-------------------------
(Dollars in Thousands)
-------------------------
<S> <C> <C>
Advances under revolving credit agreement with SunTrust Bank with $ 2,500 $ 5,000
interest at the three month LIBOR rate plus .9% (6.86% at
at December 31, 1998) due on March 30, 1999; unsecured.
Advances from Federal Home Loan Bank with interest at adjustable 6,000 10,000
rates (ranging from 5.10% to 5.81% at December 31, 1998) due
at various dates from January 29, 1999 to March 21, 2002.
Advance from Federal Home Loan Bank with interest at a fixed rate 350 400
(6.48% at December 31, 1998) due in annual installments of
$50,000 through June 5, 2005.
Advance from Federal Home Loan Bank with interest at a fixed rate of 3,000 -
5.52% due on April 2, 2003.
---------- ----------
$ 11,850 $ 15,400
========== ==========
</TABLE>
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 $1,513,000 at December 31,
1998.
Other borrowings at December 31, 1998 have maturities in future years
as follows:
<TABLE>
<CAPTION>
(Dollars in
Thousands)
-------------
<S> <C>
1999 $ 5,550
2000 2,050
2001 50
2002 1,050
2003 3,050
Later years 100
----------
$ 11,850
==========
</TABLE>
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. INCOME TAXES
The total income taxes in the consolidated statements of income are as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(Dollars in Thousands)
---------------------------------------
<S> <C> <C> <C>
Current $ 3,905 $ 3,568 $ 3,221
Deferred (1,170) (449) (382)
---------- -------- --------
$ 2,735 $ 3,119 $ 2,839
========== ======== ========
</TABLE>
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,
----------------------------------------------------------------------
1998 1997 1996
------------------- ------------------ ------------------
Amount Percent Amount Percent Amount Percent
------- ------- ------ ------- ------ -------
(Dollars in Thousands)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate $ 3,280 34 % $ 3,592 34 % $ 3,399 34 %
Increase (decrease) resulting from:
Tax-exempt interest (407) (4) (439) (4) (359) (4)
Amortization of excess
cost over assets acquired 167 1 167 2 82 1
Tax-exempt life insurance proceeds (408) (4) - - - -
Changes in valuation
allowance for deferred taxes - - (94) (1) (228) (2)
Other 103 1 (107) (1) (55) (1)
-------- ----- ------- ---- -------- -----
Provision for income taxes $ 2,735 28 % $ 3,119 30 $ 2,839 28 %
======== ===== ======= ==== ======== =====
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. INCOME TAXES (Continued)
Net deferred income tax assets of $2,952,000 and $1,814,000 at
December 31, 1998 and 1997, respectively, are included in other
assets. The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
------------------------
(Dollars in Thousands)
<S> <C> <C>
------------------------
Deferred tax assets:
Loan loss reserves $ 2,902 $ 1,853
Deferred compensation 196 192
Nonaccrual interest 337 -
Other 2 78
Net operating loss tax carryforward 213 237
Alternative minimum tax credits - 142
------------------------
3,650 2,502
------------------------
Deferred tax liabilities:
Deprecation and amortization 532 554
Unrealized gain on securities available for sale 166 134
------------------------
698 688
------------------------
Net deferred tax assets $ 2,952 $ 1,814
========================
</TABLE>
NOTE 12. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and
the weighted average shares outstanding (the denominator) used in
determining basic and diluted earnings per share. All amounts are
presented in thousands, except per share amounts.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------------- -----------------
Basic earnings per share
<S> <C> <C> <C> <C> <C> <C> <C>
Net income $ 6,913 7,249 $ 0.95
=================
Effect of Dilutive Securities
Stock options - 12
---------------------
Dilutive earnings per share
Net income $ 6,913 7,261 $ 0.95
===================== =================
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. EARNINGS PER COMMON SHARE (Continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Net income $ 7,446 7,252 $ 1.03
=================
Effect of Dilutive Securities
Stock options - 13
---------------------
Dilutive earnings per share
Net income $ 7,446 7,265 $ 1.02
===================== =================
Year Ended December 31, 1996
--------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------------- -----------------
Basic earnings per share
Net income $ 7,158 7,056 $ 1.01
=================
Effect of Dilutive Securities
Stock options - 5
---------------------
Dilutive earnings per share
Net income $ 7,158 7,061 $ 1.01
===================== =================
</TABLE>
NOTE 13. 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.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 13. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. The Company uses the same
credit and collateral policies for these off-balance-sheet financial
instruments as it does for on-balance-sheet financial instruments. A
summary of the Company's commitments is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
--------------------------
(Dollars in Thousands)
--------------------------
<S> <C> <C>
Commitments to extend credit $ 80,861 $ 81,682
Credit card commitments 7,866 7,153
Standby letters of credit 2,761 1,584
--------------------------
$ 91,488 $ 90,419
==========================
</TABLE>
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash requirements. The credit risk involved in issuing these financial
instruments is essentially the same as that involved in extending
loans to customers. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit,
is based on management's credit evaluation of the customer.
Collateral held varies but may include real estate and improvements,
marketable securities, accounts receivable, crops, livestock,
inventory, equipment and personal property.
Credit card commitments are unsecured.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan
facilities to customers. Collateral held varies as specified above
and is required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management for the Company, any
liability resulting from such proceedings would not have a material
adverse effect on the Company's financial statements.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. CONCENTRATIONS OF CREDIT
The Banks make agricultural, agribusiness, commercial, residential and
consumer loans to customers primarily in counties in south 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 banks at December 31, 1998, as follows:
<TABLE>
<S> <C>
Noninterest-bearing accounts $31,934,000
===========
</TABLE>
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. 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, 1998, approximately $3,140,000 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, 1998, the Company and the Banks meet all capital adequacy
requirements to which it is subject.
As of December 31, 1998, 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-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. 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
------ ----- ------ ----- ------ -------
(Dollars in Thousands)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998
Total Capital
(to Risk Weighted Assets):
Consolidated $68,529 14.67% $37,361 8.00% $46,702 10.00%
American Banking Banking $12,453 13.64% $ 7,306 8.00% $ 9,132 10.00%
Heritage Community Bank $ 4,092 13.92% $ 2,353 8.00% $ 2,941 10.00%
Bank of Thomas County $ 2,956 12.03% $ 1,966 8.00% $ 2,457 10.00%
Citizens Security Bank $11,150 16.08% $ 5,547 8.00% $ 6,934 10.00%
Cairo Banking Company $ 8,029 18.73% $ 3,429 8.00% $ 4,287 10.00%
Southland Bank $12,797 12.61% $ 8,118 8.00% $10,147 10.00%
Central Bank and Trust $ 4,891 13.29% $ 2,945 8.00% $ 3,681 10.00%
First National Bank of
South Georgia $ 4,688 11.20% $ 3,347 8.00% $ 4,184 10.00%
Merchants and Farmers Bank $ 3,745 13.27% $ 2,258 8.00% $ 2,823 10.00%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $62,637 13.41% $18,681 4.00% $28,021 6.00%
American Banking Company $11,304 12.38% $ 3,653 4.00% $ 5,479 6.00%
Heritage Community Bank $ 3,723 12.66% $ 1,176 4.00% $ 1,764 6.00%
Bank of Thomas County $ 2,644 10.76% $ 983 4.00% $ 1,474 6.00%
Citizens Security Bank $10,276 14.82% $ 2,773 4.00% $ 4,160 6.00%
Cairo Banking Company $ 7,483 17.46% $ 1,715 4.00% $ 2,572 6.00%
Southland Bank $11,520 11.35% $ 4,059 4.00% $ 6,088 6.00%
Central Bank and Trust $ 4,420 12.01% $ 1,472 4.00% $ 2,209 6.00%
First National Bank of
South Georgia $ 4,164 9.95% $ 1,674 4.00% $ 2,510 6.00%
Merchants and Farmers Bank $ 3,391 12.01% $ 1,129 4.00% $ 1,694 6.00%
</TABLE>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. 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
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998
(Continued)
Tier I Capital
(to Average Assets):
Consolidated $62,637 8.95% $27,994 4.00% $34,993 5.00%
American Banking Company $11,304 8.58% $ 5,270 4.00% $ 6,587 5.00%
Heritage Community Bank $ 3,723 8.62% $ 1,728 4.00% $ 2,160 5.00%
Bank of Thomas County $ 2,644 7.16% $ 1,477 4.00% $ 1,846 5.00%
Citizens Security Bank $10,276 8.02% $ 5,125 4.00% $ 6,407 5.00%
Cairo Banking Company $ 7,483 10.19% $ 2,937 4.00% $ 3,672 5.00%
Southland Bank $11,520 6.95% $ 6,630 4.00% $ 8,288 5.00%
Central Bank and Trust $ 4,420 7.50% $ 2,357 4.00% $ 2,947 5.00%
First National Bank of
South Georgia $ 4,164 7.60% $ 2,192 4.00% $ 2,739 5.00%
Merchants and Farmers Bank $ 3,391 7.75% $ 1,750 4.00% $ 2,188 5.00%
</TABLE>
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. 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
----------- --------- ----------- --------- ------------- ---------
(Dollars in Thousands)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Capital
(to Risk Weighted Assets):
Consolidated $ 64,178 13.32% $ 38,534 8.00% $ 48,169 10.00%
American Banking Company $ 11,298 11.55% $ 7,824 8.00% $ 9,780 10.00%
Heritage Community Bank $ 3,785 13.11% $ 2,309 8.00% $ 2,887 10.00%
Bank of Thomas County $ 3,317 12.63% $ 2,101 8.00% $ 2,627 10.00%
Citizens Security Bank $ 14,350 18.79% $ 6,110 8.00% $ 7,637 10.00%
Cairo Banking Company $ 7,066 15.10% $ 3,743 8.00% $ 4,679 10.00%
Southland Bank $ 11,511 11.16% $ 8,249 8.00% $ 10,312 10.00%
Central Bank and Trust $ 5,474 12.68% $ 3,453 8.00% $ 4,316 10.00%
First National Bank of
South Georgia $ 4,841 12.38% $ 3,128 8.00% $ 3,909 10.00%
Merchants and Farmers Bank $ 3,946 14.34% $ 2,202 8.00% $ 2,752 10.00%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 58,137 12.07% $ 19,267 4.00% $ 28,901 6.00%
American Banking Company $ 10,075 10.30% $ 3,912 4.00% $ 5,868 6.00%
Heritage Community Bank $ 3,424 11.86% $ 1,155 4.00% $ 1,732 6.00%
Bank of Thomas County $ 2,988 11.38% $ 1,051 4.00% $ 1,576 6.00%
Citizens Security Bank $ 13,395 17.54% $ 3,055 4.00% $ 4,582 6.00%
Cairo Banking Company $ 6,471 13.83% $ 1,872 4.00% $ 2,808 6.00%
Southland Bank $ 10,218 9.91% $ 4,125 4.00% $ 6,187 6.00%
Central Bank and Trust $ 4,933 11.43% $ 1,726 4.00% $ 2,590 6.00%
First National Bank of
South Georgia $ 4,351 11.13% $ 1,564 4.00% $ 2,346 6.00%
Merchants and Farmers Bank $ 3,602 13.09% $ 1,101 4.00% $ 1,651 6.00%
</TABLE>
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. 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
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
--------------------------------------------------------------------------------------
As of December 31, 1997
(Continued)
Tier I Capital
(to Average Assets):
<S> <C> <C> <C> <C> <C> <C>
Consolidated $ 58,137 8.60% $ 27,039 4.00% $ 33,799 5.00%
American Banking Company $ 10,075 8.46% $ 4,792 4.00% $ 5,990 5.00%
Heritage Community Bank $ 3,424 8.53% $ 1,617 4.00% $ 2,022 5.00%
Bank of Thomas County $ 2,988 8.25% $ 1,443 4.00% $ 1,804 5.00%
Citizens Security Bank $ 13,395 10.89% $ 4,975 4.00% $ 6,219 5.00%
Cairo Banking Company $ 6,471 8.66% $ 3,029 4.00% $ 3,786 5.00%
Southland Bank $ 10,218 7.37% $ 5,543 4.00% $ 6,929 5.00%
Central Bank and Trust $ 4,933 8.36% $ 2,345 4.00% $ 2,931 5.00%
First National Bank of
South Georgia $ 4,351 8.28% $ 2,101 4.00% $ 2,626 5.00%
Merchants and Farmers Bank $ 3,602 8.45% $ 1,724 4.00% $ 2,156 5.00%
</TABLE>
NOTE 16. 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, 1998
and 1997. 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-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. 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:
For variable-rate borrowings that reprice frequently, fair values
are based on carrying values. For fixed-rate borrowings, the fair
values are estimated using discounted cash flow methods, using
interest rates currently being offered for borrowings with
similar terms.
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. 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, 1998 December 31, 1997
----------------------------- ----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------ -------------- --------------
(Dollars in Thousands)
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 56,475 $ 56,475 $ 37,151 $ 37,151
=========== =========== =========== =========
Investments in securities $ 154,546 $ 155,258 $ 123,219 $ 123,776
=========== =========== =========== ==========
Loans $ 477,194 $ 474,259 $ 490,244 $ 505,637
Allowance for loan losses (10,192) - (7,627) -
------------- ----------- ----------- ----------
Loans, net $ 467,002 $ 474,259 $ 482,617 $ 505,637
============= =========== =========== ==========
Financial liabilities:
Noninterest-bearing demand $ 99,957 $ 99,957 $ 90,109 $ 90,109
Interest-bearing demand 132,527 132,527 128,294 128,294
Savings 59,719 59,719 46,715 46,715
Time deposits 341,122 343,893 335,593 343,990
----------- ----------- ----------- ----------
Total deposits $ 633,325 $ 636,096 $ 600,711 $ 609,108
=========== =========== =========== ==========
Federal funds purchased and securities
sold under agreements to repurchase $ 883 $ 883 $ 660 $ 660
=========== =========== ========= ==========
Other borrowings $ 11,850 $ 11,958 $ 15,400 $ 15,400
=========== =========== ========= ==========
</TABLE>
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17. YEAR 2000
The Company is currently working to resolve the potential impact of
the Year 2000 on the processing of date-sensitive information by the
Company's computerized information systems. The Year 2000 problem is
the result of computer programs being written using two digits (rather
than four) to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. Due to
the fact that the Company is heavily dependent on computer processing
and telecommunication systems in their daily business activities, this
could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in normal business
activities.
In response to the Year 2000 issue, the Company created a Year 2000
Task Force to coordinate and monitor the Company's progress in their
Year 2000 remediation efforts. The Task Force reports directly to the
Company's executive management and also provides regular reports to
the Board of Directors. The Task Force has conducted a comprehensive
review of the Company's computer systems and software to identify the
systems and software that could be effected by the Year 2000 issue.
Although absolute assurance cannot be given, the Company presently
believes that with the modifications to existing systems and software
and converting to new software, the Year 2000 problem will not pose a
significant operational problem to the Company or have a material
adverse effect on future operating results.
The Company has also conducted formal communications with its
significant suppliers and large customers to determine their plans to
address the Year 2000 issue. While the Company expects a successful
resolution of all issues, there can be no guarantee that the systems
of other companies on which the Company's systems rely will be
converted in a timely manner, or that a failure to convert by a
supplier or customer, would not have a material adverse effect on the
Company.
F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 18. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997
--------------------------
<S> <C> <C>
Assets
Cash $ 2,747 $ 2,262
Investment in subsidiaries 66,201 67,172
Other assets 6,544 5,189
---------- ----------
Total assets $ 75,492 $ 74,623
========== ==========
Liabilities
Other borrowings $ 2,500 $ 5,000
Other liabilities 1,158 1,470
---------- ----------
Total liabilities 3,658 6,470
---------- ----------
Stockholders' equity 71,834 68,153
---------- ----------
Total liabilities and stockholders' equity $ 75,492 $ 74,623
========== ==========
</TABLE>
F-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 18. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Dividends from subsidiaries $ 8,942 $ 7,911 $ 5,358
Interest 69 63 44
Fee income 6,702 5,392 2,953
Other income 962 446 111
------------ ------------ ------------
Total income 16,675 13,812 8,466
------------ ------------ ------------
Expense
Interest 223 353 230
Amortization and depreciation 636 567 477
Merger and acquisition expense 4 406 708
Other expense 7,593 6,365 4,408
------------ ------------ ------------
Total expense 8,456 7,691 5,823
------------ ------------ ------------
Income before income tax benefits
and equity in undistributed earnings
(distributions in excess of earnings)
of subsidiaries 8,219 6,121 2,643
Income tax benefits 77 828 889
------------ ------------ ------------
Income before equity in undistributed
earnings (distributions in excess of earnings)
of subsidiaries 8,296 6,949 3,532
Equity in undistributed earnings (distributions
in excess of earnings) of subsidiaries (1,383) 497 3,626
------------ ------------ ------------
Net income $ 6,913 $ 7,446 $ 7,158
============ ============ ============
</TABLE>
F-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,913 $ 7,446 $ 7,158
------------- ------------ -------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 276 208 117
Amortization of intangible assets 360 359 360
Distributions in excess of earnings
(undistributed earnings) of subsidiaries 1,383 (497) (3,626)
Decrease in interest receivable - 6 10
Increase (decrease) in interest payable (82) 79 (11)
Increase (decrease) in taxes payable (812) 199 (169)
Provision for deferred taxes 47 (231) (38)
(Increase) decrease in due from subsidiaries (79) 136 (333)
Other prepaids, deferrals and accruals, net 102 51 (240)
------------- ------------ -------------
Total adjustments 1,195 310 (3,930)
------------- ------------ -------------
Net cash provided by operating activities 8,108 7,756 3,228
------------- ------------ -------------
INVESTING ACTIVITIES
Decrease in interest-bearing deposits in banks - - 2,060
Purchases of premises and equipment (1,458) (935) (482)
Proceeds from sale of premises - - 10
Contribution of capital to subsidiary bank (350) (4,200) -
Cash paid for purchased subsidiary - - (6,216)
Proceeds from maturities of securities held
to maturity - 200 -
------------- ------------ -------------
Net cash used in investing activities (1,808) (4,935) (4,628)
------------- ------------ -------------
</TABLE>
F-40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18. CONDENSED FINANCIAL INFORMATION OF ABC BANCORP
(PARENT COMPANY ONLY) (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from other borrowings $ - $ - $ 5,000
Repayment of other borrowings (2,500) - (2,200)
Proceeds from exercise of stock options
of pooled subsidiaries - - 254
Treasury stock transactions, net (415) - 26
Purchase of fractional shares - (7) (7)
Dividends paid (2,900) (2,633) (1,763)
---------- ---------- ----------
Net cash provided by (used in)
financing activities (5,815) (2,640) 1,310
---------- ---------- ----------
Net increase (decrease) in cash 485 181 (90)
Cash at beginning of year 2,262 2,081 2,171
---------- ---------- ----------
Cash at end of year $ 2,747 $ 2,262 $ 2,081
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for interest $ 305 $ 274 $ 241
</TABLE>
F-41
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
-------------- --------------------------------------------------------------
<S> <C>
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.
3.5 Form of Articles of Amendment to the Articles of
Incorporation (incorporated by reference to Exhibit 3.5
to ABC's Annual Report on Form 10-K (File No. 001-
13901), filed with the Commission on March 25, 1998).
3.6 Form of Amendment to Bylaws (incorporated by reference to
Exhibit 3.6 to ABC's Annual Report on Form 10-K (File
No. 001-13901), filed with the Commission on March 25,
1998).
3.7 Form of Articles of Amendment to the Articles of
Incorporation filed electronically herewith.
3.8 Form of Amendment to Bylaws filed electronically
herewith.
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No Description
--------------- ---------------------------------------------------------
<S> <C>
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).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No Description
--------------- --------------------------------------------------------------
<S> <C>
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).
10.15 Form of Purchase and Assumption Agreement by and between
NationsBank, N.A. (South) and ABC Bancorp dated as of
February 26, 1997 (incorporated by reference to Exhibit
10.15 to ABC's Annual Report on Form 10-K (File No. 001-
13981), filed with the Commission on March 25, 1998).
10.16 Form of Agreement and Plan of Merger by and between ABC
Bancorp and Irwin Bankcorp, Inc. dated as of May 15, 1997
(incorporated by reference to Exhibit 10.16 to ABC's Annual
Report on Form 10-K (File No. 001-13901) filed with the
Commission on March 25, 1998).
10.17 Form of Omnibus Stock Ownership and Long-Term Incentive
Plan (incorporated by reference to Exhibit 10.17 to ABC's
Annual Report on Form 10-K (File No. 001-13901), filed with
the Commission on March 25, 1998).
10.18 Form of Rights Agreement between ABC Bancorp and SunTrust
Bank dated as of February 17, 1998 (incorporated by
reference to Exhibit 10.18 to ABC's Annual Report on Form
10-K (File No. 001-13901), filed with the Commission on
March 25, 1998).
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.
</TABLE>
<PAGE>
Exhibit 3.7
AMENDMENTS TO THE
ARTICLES OF INCORPORATION OF
ABC BANCORP
II(A):
The Articles of Incorporation of the Corporation shall be amended by adding
the following Article XII, thereof:
"XII.
(1) Vacancies on the Board of Directors of the Corporation and newly
directorships resulting from an increase in the authorized number of
members of the Board of Directors of the Corporation may be filled only by
a majority of the directors, then in office, although less than a quorum,
or by a sole remaining director.
(2) Each director, including a director elected to fill a vacancy or a
newly created directorship, shall hold office until the next election of
the class of directors to which such director belongs and until his or
her successor is elected and qualified or until his or her earlier death,
resignation, or removal from office for cause ...."
II(B):
The Article of Incorporation of the Corporation shall be amended by adding
the following as Article XII thereof:
"... (3) any director or the entire Board of Directors of the
Corporation may be removed from any office at any time but only for cause
and only by the affirmative vote of the holders of at least a majority of
all outstanding shares of capital stock of the Corporation then entitled to
vote in an election of directors of the Corporation voting as a single
class.... "
II(C):
The Articles of Incorporation of the Corporation shall be amended by adding
the following as Article XII. thereof:
"... (4) A majority of total directors shall constitute a quorum for
the transaction of business."
II(E):
The Articles of Incorporation of the Corporation shall be amended by adding
the following as Articles XIII. thereof:
"XIII.
Notwithstanding any provisions of these Articles of Incorporation or
the Bylaws of the Corporation to the contrary, the affirmative vote of the
holders of at least seventy-five percent (75%) of the voting power of all
outstanding shares of capital stock of the Corporation then entitled to
vote in an election of directors of the Corporation, voting as a single
class, shall be required to alter, amend or repeal the provisions of
Article XII hereof, this Article XIII or Article III, Section 2 of the
Bylaws of the Corporation or to adopt any provision of these Articles of
Incorporation or the Bylaws of the Corporation which is inconsistent with
the provisions of Article XII hereof, this Article XIII or Article II,
Section 2 of the Bylaws of the Corporation."
<PAGE>
Exhibit 3.8
AMENDMENTS
TO THE
BYLAWS OF
ABC BANCORP
II(A):
1. The Bylaws of ABC Bancorp shall be amended by deleting Article III,
Section 3 in its entirety and substituting the following in lieu thereof:
"Section 3. Vacancies. Vacancies on the Board of Directors of the
Corporation and newly created directorships resulting from an increase in
the authorized numbers of members of the Board of Directors of the
Corporation may be filled only by a majority of the directors, then in
office, although less than a quorum, or by a sole remaining director, and a
director so chosen shall hold office until the next election of the class
of directors to which such director belongs and until his successor is duly
elected and qualified unless sooner displaced."
II(B):
2. The Bylaws of ABC Bancorp shal be amended by deleting the words "or
without" from the third line of Article III, Section 9 of the Bylaws.
II(D):
3. The Bylaws of ABC Bancorp shall be amended by deleting ARticle III,
Section 2 in its entirety and substitution the following in lieu thereof:
"Section 2. Number, Election, Term and Retirement; Nominations by
Shareholders. (a) The number of directors which shall constitute the whole
Board of Directors shall be not less than seven nor more than 15. The Board
of Directors of the corporation shall be divided into three classes which
shall be as nearly equal in number as is possible. At the first election of
directors to such classified Board of Directors, each Class 1 director
shall be elected to serve until the next ensuing annual meeting of
shareholders, each Class 2 director shall be elected to serve until the
second ensuing annual meeting of shareholders and each Class 3 director
shall be elected to serve until the third ensuing annual meeting of
shareholders. At each annual meeting of shareholders following the meeting
at which the Board of Directors is initially classified, the number of
directors equal to the number of the class whose term expires at the time
of such meeting shall be elected to serve until the third ensuing annual
meeting of shareholders. In the event of any change in the authorized
number of directors, the number of directors in each class shall be
adjusted so that thereafter each of the three classes shall be composed, as
nearly as may be possible, of one-third of the authorized number of
directors; provided that any change in the authorized number of directors
shall not increase or shorten the term of any director, and any decrease
shall become effective only as and when the term or terms of office of the
class or classes of directors affected thereby shall expire, or a vacancy
or vacancies in such class or classes shall occur. The number of directors
may be increased or decreased from time to time by the Board of Directors
by amendment of this by-law, but no decrease shall have the effect of
shortening the term of an incumbent director. The directors shall be
elected by plurality vote at the annual meeting of shareholders, except as
hereinafter provided, and each director elected shall hold office until his
successor is elected and qualified or until his earlier resignation,
removal from office or death. Directors shall be natural persons who have
attained the age of 18 years, but need not be residents of the State of
Georgia or shareholders of the corporation. Employees of subsidiary
corporations shall not be eligible to serve as directors. With the
exception of Eugene M. Vereen, Jr., each director shall retire at the
annual meeting following the date such director attains the age or 70.
<PAGE>
(b) Nominations of persons for election to the Board of Directors of
the Corporation may be made at a meeting of shareholders of the Corporation
either by or at the direction of the Board of Directors of the Corporation
or by any shareholder or record entitled to vote in the election of
directors at such meeting who has complied with the notice procedures set
forth in this Section 2(b). A share holder who desires to nominate a person
for election to the Board of Directors of the Corporation at a meeting of
shareholders of the Corporation and who is eligible to make such nomination
must give timely written notice of the proposed nomination to the secretary
of the Corporation. To be timely, a shareholder's notice given pursuant to
this Section 2(b) must be received at the principal executive office of the
Corporation not less than one hundred twenty (120) calendar days in advance
of the date which is one year later than the date of the proxy statement of
the Corporation released to shareholders in connection with the previous
year's annual meeting of the shareholders of the Corporation; provided,
however, that if no annual meeting of shareholders of the Corporation was
held in the previous year or if the date of the forthcoming annual meeting
of shareholders has been changed by more than thirty (30) calendar days
from the date contemplated at the time of the previous year's proxy
statement or if the forthcoming meeting is not an annual meeting of
shareholders of the Corporation, then to be timely such shareholder's
notice must be so received not later than the close of business on the
tenth day following the earlier of (i) the day on which notice of the date
of the forthcoming meeting was mailed or given to shareholders by or on
behalf of the Corporation or (ii) the day on which public disclosure of the
date of the forthcoming meeting was made by or on behalf of the
Corporation. Such shareholder's notice to the secretary of the Corporation
shall set forth (i) as to each person whom the shareholder proposes or
nominate for election or re-election as a director (A) the name, age,
business address and residence address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares
of capital stock of the Corporation which then are beneficially owned by
such person, (D) any other information relating to such person that is
required by law or regulation to be disclosed in solicitations of proxies
for the election of directors of the Corporation, and (E) such person's
written consent to being named as a nominee for election as a director and
to serve as a director if elected and (ii) as to the shareholder giving
notice (A) the name and address, as they appear in the stock records of the
Corporation, of such shareholder, (B) the class and number of shares of
capital stock of the Corporation which then are beneficially owned by such
shareholder, (C) a description of all arrangements or understandings
between such shareholder and each nominee for election as director and any
other person or persons (naming such person or persons) relating to the
nomination proposed to be made by such shareholder, and (D) any other
information required by law or regulation to be provided by a shareholder
intending to nominate a person for election as a director of the
Corporation. At the request of the Board of Directors of the Corporation,
any person nominated by or at the direction of the Board of Directors of
the Corporation for election as director of the Corporation shall furnish
to the secretary of the Corporation the information concerning such nominee
which is required to be set forth in a shareholder's notice of a proposed
nomination. No person shall be eligible for election as a director of the
Corporation unless nominated in compliance with the procedures set forth in
this Section 2(b). The chairman of a meeting of shareholders of the
Corporation shall refuse to accept the nomination of any person not made in
compliance with the procedures set forth in this Section 2(b), and such
defective nomination shall be disregarded."
2
<PAGE>
Exhibit 21.1
REGISTRANT'S SUBSIDIARIES
Following is a list of the Registrant's subsidiaries and the state of
incorporation or other jurisdiction.
<TABLE>
<CAPTION>
State of Incorporation or
Name of Subsidiary Other Jurisdiction
- ------------------------------------ ------------------------------------
<S> <C>
American Banking Company State of Georgia
Heritage Community Bank State of Georgia
Bank of Thomas County State of Georgia
Citizens Security Bank 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
</TABLE>
Each subsidiary conducts business under the name listed above.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 42,058
<INT-BEARING-DEPOSITS> 14,417
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 135,933
<INVESTMENTS-CARRYING> 18,613
<INVESTMENTS-MARKET> 19,325
<LOANS> 477,194
<ALLOWANCE> 10,192
<TOTAL-ASSETS> 724,946
<DEPOSITS> 633,325
<SHORT-TERM> 6,265
<LIABILITIES-OTHER> 7,054
<LONG-TERM> 6,468
0
0
<COMMON> 7,525
<OTHER-SE> 64,309
<TOTAL-LIABILITIES-AND-EQUITY> 724,946
<INTEREST-LOAN> 51,584
<INTEREST-INVEST> 7,180
<INTEREST-OTHER> 1,130
<INTEREST-TOTAL> 59,894
<INTEREST-DEPOSIT> 25,411
<INTEREST-EXPENSE> 26,444
<INTEREST-INCOME-NET> 33,450
<LOAN-LOSSES> 5,505
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 27,996
<INCOME-PRETAX> 9,648
<INCOME-PRE-EXTRAORDINARY> 9,648
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,913
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
<YIELD-ACTUAL> 5.34
<LOANS-NON> 8,767
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,767
<ALLOWANCE-OPEN> 7,627
<CHARGE-OFFS> 4,030
<RECOVERIES> 1,090
<ALLOWANCE-CLOSE> 10,192
<ALLOWANCE-DOMESTIC> 10,192
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,192
</TABLE>
